THE  GIFT  OF 

MAY  TREAT  MORRISON 

IN  MEMORY  OF 

ALEXANDER  F  MORRISON 


INCOME  TAXATION 

METHODS  AND  RESULTS 
IN   VARIOUS  COUNTRIES 


BY 


KOSSUTH  KENT  KENNAN 

*  * 


1910 

BURDICK  &  ALLEN 

Publishers 
Milwaukee,  Wis. 


COPYRIGHT  1910 

by 
Burdick  &  Allen 


Set  up  and  Electrotyped  November,  1910 


Library 

HJ 


PREFACE. 


It  is  not  the  purpose  of  this  book  to  discuss  the 
question  of  income  taxation  from  a  theoretical  stand- 
point; but  rather  to  collate  the  more  important  facts 
regarding  methods  and  results  of  such  taxation  in 
various  countries  and  to  present  them  in  such  a  man- 
ner that  they  will  be"  useful  and  readily  available  to 
business  men,  legislators,  students  and  others  who 
may  wish  to  study  the  subject  from  its  practical  side. 
The  passage  of  the  Corporation  Tax  Law,  which 
is  a  form  of  income  tax,  the  proposition  to  amend  the 
Constitution  so  as  to  permit  the  levy  of  a  Federal  in- 
come tax,  and  the  agitation  in  some  states  for  local 
income  taxes,  have  all  contributed  to  awaken  a  special 
interest  in  this  form  of  taxation.    The  last  Federal  in- 
&     come  tax  in  the  United  States  was  repealed  nearly 
w     forty  years  ago  and  the  present  generation  has  al- 
H     most  forgotten  that  such  a  tax  ever  formed  an  im- 
portant part  of  our  fiscal  system.    But  recent  events 
have  brought   this  form   of  taxation  into  the   fore- 

§     ground  of  public  discussion  and  it  becomes  important 
to  know  what  results  have  been  attained  by  it  in  this 
5     and  other  countries. 

The  subject  is  too  large  to  be  treated  with  any 
^     pretension  of  thoroughness  in  a  single  volume  and 
.     the  constant  necessity  for  condensation  has  given  the 
^.     book  more  of  a  statistical  character  than  was  original- 
*     ly  intended.    The  facts  which  are  presented  have  been 
gathered  from  a  great  variety  of  sources,  many  of 
which  are  books  in  foreign  languages  not  readily  ac- 
t     cessible  to  the  average  reader.     For  the  benefit  of 
°      those  who  may  desire  to  investigate  the  subject  more 
thoroughly  numerous  references  have  been  made  in 
the  notes  to  such'  authorities  and  sources  of  informa- 
tion as  have  been  found  most  instructive  and  helpful. 

Milwaukfe,  November  10,  1910. 


TABLE  OF  CONTENTS. 


Chapter          I.     Definitions    I-  *7 

Income 
Tax 

Income  Tax 
Proportional 
Graduated 
Progressive 
Regressive 
Degressive 
Exemptions 
Abatements 
Differentiation 
Super-tax 
Direct  Taxes 

Chapter        II.     Australasia 18-  34 

New  South  Wales 
New  Zealand 
Queensland 
South  Australia 
Tasmania 
Victoria 
Western  Australia 

Chapter      III 35-  57 

Austria 

Belgium 

British  Columbia 

Canada 

Cape  of  Good  Hope 

Denmark 


Chapter      IV.    England  58-74 

Chapter        V.     France    75-  85 

Chapter      VI.     Germany 86-106 

Prussia 

Chapter    VII.     Germany   107-129 

Minor  German  States 

Chapter  VIII 130-155 

Greece 

Hawaii 

Holland 

Hungary 

India 

Italy 

Chapter      IX 156-180 

Japan 

Leeward  Islands 
Luxemburg 
Norway 
Panama 
Philippines 
Russia 
Finland 

Chapter        X 181-202 

St.  Vincent 

Seyschelles 

Spain 

Sweden 

Switzerland 


Chapter.     XL     United  States  203-236 

A.  Income  Taxes  in  the  Colonies 

B.  Income  Taxes  in  the  States 

Chapter    XII.     United    States.      Federal    Income 

Taxes   237-272 

A.  The  Civil  War  Income  Tax 

B.  The  Income  Tax  Law  of  1894 

C.  The  Income  Tax  in  the 

Southern  Confederacy 

Chapter  XIII.     United  States.      The   Corporation 

Tax  Law  273-286 

Chapter  XIV.  United  States.  The  Proposed  i6th 
Amendment  to  the  Constitu- 
tion   287-306 

Chapter    XV.     Summary    3°7-325 

Appendixes 

Bibliography 

Index 


CHAPTER  I. 


DEFINITIONS. 

The  necessity  for  a  chapter  on  definitions  may  not 
be  at  once  apparent;  but  when  it  is  seen  how  much 
confusion  has  arisen  from  the  various  meanings  given 
to  even  the  most  common  words  connected  with  the 
subject  of  taxation,  the  importance  of  defining  clearly 
some  of  the  terms  most  frequently  used  will  be  con- 
ceded. In  the  words  of  a  French  writer  upon  taxa- 
tion: "So  long  as  writers  use  words  which  have  no 
precise  signification,  which  may  be  and  are  inter- 
preted in  a  variety  of  ways,  and  which  may  convey 
different  ideas  to  different  minds,  there  will  be  uncer- 
tainty in  their  theories,  or  rather  there  will  be  vague, 
incomplete  and  poorly  co-ordinated  theories;  and 
then,  as  all  practice  is  the  application  of  theories,  the 
practice  resulting  from  them  will  be  faulty." 

Income.  In  its  general  sense  income  has  been 
defined  to  be  "that  which  comes  in  to  a  person  as  pay- 
ment for  labor  or  services  rendered  in  some  office,  or 
as  gains  from  lands,  business,  the  investment  of 
capital,  etc. ;  receipts  or  emoluments  regularly  accru- 
ing either  in  a  given  time  or,  when  unqualified,  an- 
nually; the  annual  receipts  of  a  person  or  corpora- 


2  INCOME  TAXATION 

tion;  revenue."1  It  is  evident  that  the  above  defini- 
tion, in  so  far  as  it  mentions  gains,  has  reference  to  net 
income,  while  the  latter  portion  of  the  definition 
would  apply  to  gross  income,  or  gross  receipts.  That 
gross  receipts  ;may  differ  widely  from  the  popular 
•*f-  income  will  be  seen  if  we  take  as  an 


the,  case  of  a  merchant  who  may  receive 
'large  'sums  'of  money  in  the  course  of  a  year  only  to 
find  himself  bankrupt  at  the  end  of  that  period.  It 
would  hardly  be  said  of  him  that  he  had  an  income 
to  the  amount  of  his  gross  receipts.  On  the  other 
hand,  in  the  case  of  a  man  who  has  no  other  income 
than  his  salary,  it  might  be  said  that  his  income  and 
his  gross  receipts  were  identical. 

The  idea  of  income  will  differ  somewhat  accord- 
ing to  whether  it  is  considered  as  derived  from  ser- 
vices or  from  property.  For  example,  income  has 
been  defined  as  "the  returns  which  come  in  to  the  in- 
dividual as  the  result  of  his  economic  activities,  or 
from  his  control  of  the  economic  activities  of  others;" 
while  another  writer,  having  in  mind  the  income  from 
property,  says  that  it  "consists  of  what  the  property 
produces  ;  the  profit  which  comes  from  its  use  in  busi- 
ness or  what  is  paid  for  its  use  by  another  than  its 
owner."2 

It  is  important  to  differentiate  between  the 
economic  and  legal  conceptions  of  income.  A  Ger- 


1.  Century  Dictionary.     Webster's   New  International  Diction- 
ary (1910)  defines  income  as  "that  gain  or  recurrent  benefit  (usually 
measured  in  money)   which  proceeds  from  labor,  business  or  prop- 
erty; commercial  revenue  or  receipts  of  any  kind,  including  wages 
or  salaries,  the  proceeds  of  agriculture  and  commerce,  the  rent  of 
houses  or  the  return  on  investments." 

2.  Howe.    The  American  Law  relating  to  Income,  p.  1. 


DEFINITIONS  3 

man  writer  on  political  economy  has  defined  income 
as  the  sum  of  economic  goods  or  gains  accruing  to  a 
person  within  a  given  period,  which  are  not  needed 
to  replace  capital  and  which  the  person  may  there- 
fore consume  without  diminishing  his  wealth.3  This 
is  perhaps  a  fairly  typical  definition  out  of  many  which 
might  be  quoted;  but  when  an  attempt  is  made  to 
draw  the  line  between  income  and  capital,  wide 
divergences  of  opinion  are  noted.  Professor  Irving 
Fisher  has  written  a  book  of  several  hundred  pages 
upon  "The  Nature  of  Capital  and  Income,"  in  which 
he  argues  that  the  services  which  a  man  receives  from 
his  profits  and  gains  is  all  that  can  properly  be  called 
income.  In  other  words,  he  would  make  expenditure 
or  consumption  the  basis  of  income  taxation.4  He 
draws  rather  fine  distinctions  between  income,  sav- 
ings and  earnings  and  argues  that  savings  are  not  in- 


3.  "Unter  Einkommen  versteht  man  die  Summe  der  einer  Per- 
son in  einem  bestimmten  Zeitraume  zufliessenden  wirthschaftlichen 
Gueter  oder  Wertherhoehungen,  welche  nicht  Ersatz   von   Kapital 
sind  und  von  derselben  daher  ohne  Verminderung  ihres  Vermoegens 
verzehrt  werden  koennen."     Th.   Mithoff    in    Handbuch  der  politi- 
schen  Oekonomie.    Vol.   1,  p.  590.     "Income  in   an  economic  sense 
implies  an  increase  of  wealth  in  addition  to  that  which  is  already 
possessed  and  which  comes  in  within  a  definite  period  of  time,  giv- 
ing an  increased  power  of  satisfying  wants  within  that  time.     Only 
net  income  is  such  income."     Weston,  Principles  of  Justice  in  Taxa- 
tion, p.  179. 

4.  As  an  illustration  of  Fisher's  theory  as  applied  to  the  income 
tax  the  following  example  may    be    instructive :       Three  brothers 
each  supposedly  inheriting  $10,000,  are  subjected  to  an  income  tax. 
The  first  invests  his   $10,000   in  a  perpetual   annuity  of  $500;  the 
second  deposits  his  portion  in  trust  to  be  invested  in  an  annuity  of 
$1,000  to  begin  at  the  end  of  fourteen  years,  after  the  capital  has 
doubled ;  the  third,  a  spendthrift,  buys   an  annuity  of  .nearly  $2,000 
for   six  years.     According  to   Fisher,  the  $500,   the  $1,000  and  the 
$2,000  are  the  true   realized  incomes  which  alone  should  be  taxed 
under  income  taxation ;  the  second  brother  should  be  taxed  on  noth- 
ing until  after  fourteen  years,  as  until  then  he  would  be  spending  noth- 
ing; and  the  third  brother  should  be  taxed  during  his  brief  spend- 
thrift career  on  an  income  of  $2,000, 


4  INCOME  TAXATION 

come,  a  conclusion  which  is  sharply  criticized  and  dis- 
puted by  some  good  authorities.8 

It  might  be  expected  that  the  courts  and  law- 
makers would  be  exact  and  uniform  in  their  definition 
of  income  in  a  legal  sense,  but  unfortunately  they  are 
not,  as  the  following  extracts  from  some  of  the  de- 
cisions will  show. 

In  a  New  York  decision  often  cited  the  Court  used 
the  following  language : 

It  is  undoubtedly  true  that  "profit"  and  "income"  are 
sometimes  used  as  synonymous  terms ;  but,  strictly  speak- 
ing, "income"  means  that  which  comes  in  or  is  received  from 
any  business  or  investment  of  capital,  without  reference  to 
the  outgoing  expenditures,  while  "profits"  generally  mean 
the  gain  which  is  made  upon  any  business  or  investment 
when  both  receipts  and  payments  are  taken  into  account. 
"Income"  when  applied  to  the  affairs  of  individuals,  ex- 
presses the  same  idea  that  "revenue"  does  when  applied  to 
the  affairs  of  a  state  or  nation ;  and  no  one  would  think  of 
denying  that  our  government  has  any  revenue,  because  for 
a  stated  period  the  expenditures  may  exceed  the  amount  of 
the  receipts.6 

Upon  the  question  of  whether  or  not  income  could 
be  considered  property,  it  has  been  held: 

Gross  earnings  and  interest  coming  in  from  any  source, 
labor,  capital  investment  of  any  sort,  or  money  loaned,  are 
not  property  in  the  sense  of  the  constitution,  but  are  merely 
income.  Certainly  the  gross  earnings  of  a  laboring  man  are 
nothing  but  his  income.  So  it  would  seem  that  the  earnings 
of  a  salaried  officer  are  income,  and  so  the  income  from 
capital  employed  in  a  bank  or  railroad  or  manufacture  would 
seem  to  be  income  only.  The  net  income  after  the  expenses 
are  paid  becomes  property  when  invested,  or.  if  it  be  money 


5.  See  criticism  of  Fisher's  book  by  Frank  A.  Fetter  in  Journal 
of  Political  Economy,  Vol.  15,  p.  129.     See  also  article,  "Are  Sav- 
ings Income?"  and  discussion  of  same  in  Publications  of  American 
Economic  Association,  Third  Series,  Vol.  IX,  p.  48,  et  seq. 

6.  People  vs.  Niagara  County  Supervisors,  4  Hill  (N.  Y.)  20. 


DEFINITIONS  5 

lying  in  a  bank  or  locked  up  at  home.  But  to  call  it  prop- 
erty, when  it  is  all  consumed  as  fast  as  it  arises — going  on 
the  back,  in  the  stomach,  or  in  carriages  and  horses,  which 
are  taxed,  or  in  travel  or  frolic — to  call  such  income,  so 
used,  property  would  seem  to  be  a  perversion  of  the  term.7 

As  against  this  "gross  receipts"  conception  of  in- 
come we  have  such  expressions  as  the  following: 
"The  income  of  an  estate  means  nothing  more  than 
the  profit  it  will  yield,  after  deducting  the  charges  of 
management  or  the  rent  which  may  be  obtained  for 
the  use  of  it.  The  rent  and  profit  of  an  estate  or  the 
income  or  the  net  income  of  it  are  all  equivalent  ex- 
pressions."8 "Income  is  defined  as  that  gain  which 
proceeds  from  labor,  business  or  property  of  any 
kind;  the  profits  of  commerce  or  business."9  "In  the 


7.  Waring  vs.  City  of  Savannah,  60  Ga.  93-99.     In  the  course 
of  the  opinion,  the  court  makes  use  of  the  following  apt  illustration : 
"The  fact  is,  property  is  a  tree ;  income  is  the  fruit ;  labor  is  a  tree ; 
income  the   fruit;   capital   a  tree;    income  the   fruit.     The   fruit,   if 
not  consumed   as  fast   as  it  ripens,  will   germinate   from  the  seed 
which  it  enclosed,  and  will  produce  other  trees,  and  grow  into  more 
property;  but  so  long  as  it  is  fruit,  merely,  and  plucked  to  eat,  and 
consumed  in  the  eating,  it  is  no  tree,  and  will  produce  itself  no 
fruit." 

Compare  President  Hadley's  statement :  "Capital  is  constantly 
being  converted  into  income  and  income  into  capital.  But  capital 
under  all  times  and  conditions  is  measured  as  a  quantity,  while  in- 
come is  more  properly  measured  as  a  rate.  Capital  is  a  static  con- 
ception independent  of  time ;  income  a  dynamic  conception  involving 
the  element  of  time."  Economics,  p.  5. 

8.  Andrews  vs.  Boyd,  5  Me.   (5  Greenleaf)    199-203.     See  also 
Earl  vs.  Rowe,  35  Me.  414-420.     Simcoke  vs.  Sayre,  126  N.  W.  Rep. 
p.  816.     (Iowa  Supreme  Court,  June  16,  1910.)     In  the  latter  case 
dividends  and  profits  are  distinguished  as  follows :     "The  word  'divi- 
dends' has  a  peculiar  and  definite  significance.     It  means  a  distribu- 
tive sum,  share  or  percentage  arising  from  some  joint  venture  as  a 
corporation  or  a  proportionate  amount  arising  from  a  bankrupt  or 
other  estate.     The  term  'profit'  has  a  much  larger  meaning,  how- 
ever,  and  covers  benefits  of  any  kind,  excess  of  value  over  cost, 
acquisition  beyond  expenditure  or  advance.     It  is  broad  enough  to 
cover  any  sort  of  advantage,  advance  or  gain." 

9.  Appeal  of  Braun,  105  Pa.  414-415. 

Thorn  vs.  DeBreteuil,  83  N.  Y.  Sup.  849-856. 
Appeal  of  Eley  (Pa.)  2  Kulp,  467-469. 


6  INCOME  TAXATION 

ordinary  commercial  sense,  'income,'  especially  when 
connected  with  the  word  'rent,'  may  mean  clear  or 
net  income."10 

The  Federal  income  tax  law  of  1862,  levied  a  tax 
"upon  the  annual  gains,  profits  or  income  of  every 
person."  In  Sections  27  and  28  of  the  income  tax  law 
of  1894,  which  was  held  unconstitutional,  the  words 
"gains,  profit  and  income"  occur  repeatedly,  while  in 
Section  32  the  reference  is  to  "net  profits  or  income" 
and  "net  annual  profits."  The  Corporation  Tax  Law 
of  1909,  applies  specifically  to  net  income  and  rules 
are  given  for  determining  what  is  net  income  and 
what  is  gross  income. 

Thus  it  appears  that  "income"  is  used  both  in  a 
broad  sense  referring  to  gross  receipts  and  in  a  nar- 
rower sense  as  equivalent  to  net  gains  or  profits.  The 
latter  meaning  seems  to  have  the  greater  weight  of 
authority  and  to  be  most  nearly  in  accord  with  the 
popular  conception  of  income.  The  word  income  will 
therefore  be  used  in  this  book  in  the  restricted  sense 
of  annual  net  earnings,  profits  or  gains.11 

Tax.  A  well  known  writer  on  taxation  has  said 
that  no  correct  definition  of  a  tax  has  yet  been  framed. 
Dr.  Richard  T.  Ely,  in  his  "Taxation  in  American 
States  and  Cities,"  makes  substantially  the  same  as- 


10.     Thompson's  Appeal,  100   Pa.  478-481. 

".  For  a  large  number  of  court  decisions  holding  that  the  usual 
and  ordinary  meaning  of  the  word  income  is  net  income  and  de- 
fining income  as  "the  balance  of  gain  over  loss  in  the  fiscal  year  or 
other  period  of  computation ;"  "what  is  left  after  paying  the  expense 
of  earning  income;"  "that  which  property  or  business  earns,  re- 
maining intact,"  etc.,  see  Cyclopedia  of  Law  and  Procedure,  Vol. 
22,  p.  63.  In  Canada  income  is  defined  by  statute  to  mean  the  annual 
profits  or  gain  arising  to  any  inhabitant  from  any  trade,  etc.  New 
Brunswick  Gen.  Ass't  Act.  (quoted  in  Lawless  vs.  Sullivan,  6  App. 
cases  373-381).  50  L.  J.  P.  C.  33.  44  L.  T.  Rep.  N.  S.  897. 


DEFINITIONS  7 

sertion,  and  after  criticizing  the  definitions  of  Cooley 
and  others  suggests  the  following  definition  as  ac- 
curate and  complete : 

Taxes  are  simply  one-sided  transfers  of  economic  goods 
or  services  demanded  of  the  citizens  and  occasionally  of 
those  not  citizens,  but  who,  nevertheless,  are  within  reach  of 
the  taxing  power,  by  the  constituted  authorities  of  the  land 
for  meeting  the  expenses  of  government,  or  for  some  other 
purpose,  with  the  intention  that  a  common  burden  shall  be 
maintained  by  common  contributions  or  sacrifices.12 

At  the  risk  of  seeming  presumptuous,  we  venture 
the  suggestion  that  whatever  taxes  may  be,  they  are 
not  "transfers."  Many  taxes  are  levied  and  assessed 
which  are  not  collected.  In  such  case  there  is  no 
transfer,  "one-sided"  or  otherwise.  The  definition 
seems  inconsistent  with  the  statement  which  im- 
mediately follows  that  "taxes  are  not  an  exchange 
nor  are  they  a  payment."  Judge  Cooley  has  defined 
taxes  as  "the  enforced  proportional  contribution  from 
persons  and  property,  levied  by  the  State,  by  virtue  of 
its  sovereignty,  for  the  support  of  government  and  for 
all  public  needs/'13  In  another  place  he  says:  "Taxes 
are  understood  to  be  burdens  or  charges  imposed  by 
the  Legislature  upon  persons  or  property,  to  raise 
money  for  public  purposes."14 

Dr.  Ely  would  criticize  both  of  these  definitions  as 
referring  solely  to  public  needs  and  public  purposes, 
claiming  that  taxes  are  often  levied  for  other  pur- 
poses. But  Judge  Cooley's  answer  to  this  is :  "A 
burden,  laid  not  for  the  purpose  of  producing  revenue, 
but  in  order  to  accomplish  some  ulterior  object  which 


12.  Ely,  Taxation  in  American  States  and  Cities,  p.  6. 

13.  Cooley  on  Taxation,  3rd  Ed.,  p.  1. 

14.  Cooley,  Constitutional  Limitations,  p.  479. 


8  INCOME  TAXATION 

the  general  government  lacks  the  power  otherwise  to 
accomplish,  *  *  *  comes  under  no  definition  of 
the  word  'tax'  which  is  recognized  in  public  law."15 
As  for  taxes  for  private  purposes,  it  must  be  remem- 
bered that  the  Supreme  Court  of  the  United  States 
has  held  that  "there  can  be  no  lawful  tax  which  is  not 
laid  for  a  public  purpose."16 

Judge  Cooley's  definition  of  taxes,  if  not  the  best, 
is  at  least  one  of  the  best  which  has  come  to  my  notice 
thus  far  and  I  am  disposed  to  adopt  it  until  a  better 
one  is  presented.17 

Income  Taxes.  It  might  be  supposed  that  if  the 
definitions  of  income  and  taxes  were  understood  there 
could  be  no  doubt  about  the  meaning  of  income  tax; 
but  many  disputes  have  arisen  as  to  whether  certain 
taxes  could  properly  be  called  income  taxes  or  not. 
For  example,  the  graduated  poll  taxes  of  1379  in  Eng- 
land and  the  progressive  forced  loans — les  emprunts 
forcees  progresses — of  the  French  Revolution  have 
been  both  claimed  and  repudiated  as  income  taxes. 


15.  Cooley  on  Taxation,  3rd  Ed.,  p.  191. 

16.  Loan  Association  vs.  Topeka,  20  Wallace  (U.  S.)  655-664. 

17.  Among  the   many  definitions  of  taxes   the   following   are 
worthy  of  notice:     "The  public  revenues  are  a  portion  which  each 
subject  gives  of  his  property  in  order  to  secure  and  enjoy  the  re- 
mainder."    Montesquieu,  Esprit  des  Lois,  Livre  XIII,  Ch.  1.  "Every 
contribution  regularly  demanded  of  the  citizens  by  the  constituted 
authorities  of  the  land  for  meeting  the  expenses  of  government,  is 
a  tax."    Leroy-Beaulieu,  Traite  de  la  Science  des  Finances,  Vol.  1 
(2nd   Ed.)    p.  105.    "A  tax  is  that  part  of  the  wealth  of  private 
individuals  which  the  authority  of  the  state,  province  or  municipality 
appropriates  in  order  to  provide  for  the  public  expenses  incurred 
for  the  advantage  of  the  general  body  of  the  taxpayers."    Cossa, 
Scienza    delle    Finanze,    Ch.     IV,    p.    50.      'Taxes    are    burdens 
or    charges    imposed    by    the    legislative    power    of    a    state  upon 
persons    or    property    for    public    uses."      Chief    Justice     Dixon 
in     Knowlton    vs.     Supervisors    of     Rock    County,    9     Wis.     410. 
(Evidently    quoted    from    opinion    of    Judge    Bronson    in    Sharp 
vs.   Speir,  4  Hill   (N.   Y.)   p.  76.) 


DEFINITIONS  9 

In  like  manner  the  early  "faculty  taxes"  of  the  Ameri- 
can colonies  are  often  spoken  of  as  income  taxes, 
though  good  authorities  deny  that  such  designation 
is  proper.18 

In  a  broad  sense  an  income  tax  is  a  tax  the  amount 
of  "which  is  determined  with  reference  to  the  income  of 
the  taxpayer.™  It  is  thus  distinguished  from  the  prop- 
erty tax,  the  amount  of  which  is  determined  with 
reference  to  the  value  of  the  property. 

Income  taxes  may  be  divided  into  proportional 
and  graduated. 

Proportional  income  taxes  are  such  as  are  levied 
at  a  uniform  rate  upon  all  incomes  regardless  of  the 
amount.20  For  example,  a  tax  of  one  per  cent  upon 
all  income  would  be  a  strictly  proportional  income 
tax.  The  ordinary  property  tax  is  proportional  when 
a  uniform  percentage  of  tax  is  levied  upon  all  prop- 
erty. The  Federal  Corporation  Tax  Law,  passed  in 
1909,  was  a  proportional  tax  as  to  all  incomes  of  cor- 
porations above  $5,000,  but  was  not  proportional  as 
to  all  incomes  of  corporations  because  of  the  distinc- 
tion between  incomes  exceeding  $5,000  and  those  of 
less  amount.  It  is  therefore  not  strictly  correct  to 
call  any  income  tax  proportional  which  provides  for 


18.  Seligman.  The  Income  Tax  in  the  American  Colonies  and 
States.     Political  Science  Quarterly,  Vol.  10,  p.  247,  June,  1895. 

19.  "The  income  tax  is  a  direct  levy  by  the  government  upon 
the  income  of  individual  citizens,  whether  that  income  is   received 
from  labor,  industry,  investments,  real  estate,  or  any  other  source." 
New  Encyclopedia  of  Social  Reform. 

20.  "A  tax  may  be  said  to  be  proportional  when  the  mathemati- 
cal relation  between  the  amount  of  the  tax  and  that  of  the  thing 
taxed  remains  the  same."     Seligman,  Progressive  Taxation  in  The- 
ory and  Practice,  p.  3. 


IO  INCOME  TAXATION 

an  exemption,  even  though  the  rate  may  be  uniform 
on  all  sums  above  the  exemption. 

Graduated  income  taxes  are  taxes  levied  at  vary- 
ing rates  proportioned  to  the  amount  of  income.  The 
term  graduated  taxation  is  sometimes  used,  especially 
in  England,  as  if  it  were  synonymous  with  progressive 
taxation;  but  progressive  taxation  is  only  one  variety 
of  graduated  taxation. 

Graduated  taxes  may  be  divided  into  progressive, 
regressive  and  degressive. 

Progressive  income  taxes  are  such  as  are  based 
upon  higher  rates  as  the  amount  of  the  income  in- 
creases. The  Federal  Income  Tax  Law  of  June  30, 
1864,  was  crudely  progressive.21  According  to  its  pro- 
visions, 

All  income  below  $600  was exempt 

Over  $600  up  to  $5,000  paid 5% 

"      $  5,000  up  to  $10,000  paid 7J/2% 

"      $10,000    paid 10% 

A  progressive  tax  in  the  most  accurate  sense 
would  be  one  which  increased  at  a  geometrical  ratio. 
It  has  been  suggested  that  a  tax,  the  rate  of  which 
increased  in  arithmetical  ratio,  should  be  called  a 
proportional  progressive  tax;  but  as  these  ratios  can 
be  used  to  a  very  limited  extent  only,  the  distinction 
is  not  important.22 


21.  Ch.  173,  §  §  116-123.     (13  Statutes  at  Large  223-281.) 

22.  An  attempt  has  been  made  to  illustrate  proportional  pro- 
gression in  Appendix  A,  but  it  will  be  observed  that  any  exemption 
of    smaller    incomes    would    interfere    with    the    symmetry    of   the 
scheme.     If  the  rate  from  one  per  cent,  to  ten  per  cent,   increased 
continuously  and  in  proportion  to  each  dollar  of  increase  of  income, 
the  tax  would  be  represented  by  the  dotted  line. 


DEFINITIONS  1 1 

Regressive  income  taxes  are  such  as  are  based  up- 
on lower  rates  as  the  amount  of  income  increases.  In 
general  a  regressive  tax  would  be  the  reverse  of  a 
progressive  tax.  For  example,  if  the  law  of  1864, 
above  referred  to,  had  levied  a  tax  of  10%  on  incomes 
of  from  $600  to  $5,000,  of  ll/2%  on  incomes  from 
$5,000  to  $10,000  and  5%  on  all  incomes  over  $10,000, 
that  would  have  been  a  regressive  tax.  Such  taxes 
are  not  common,  but  have  been  levied  occasionally  in 
England  and  in  France.23 

Degressive  income  taxes  are  such  as  have  a  diminish- 
ing rate  as  the  incomes  grow  smaller — reckoning 
downward  from  a  point  where  the  rate  is  constant. 
It  will  be  readily  seen  that  any  progressive  income  tax 
must  eventually  reach  a  point  beyond  which  further 
progression  would  be  useless  and  at  that  point  the 
rate  will  necessarily  become  constant,  or  propor- 
tional. If  the  tax  is  progressive  up  to  that  point,  it 
will  be  degressive  from  that  point  downward.  The 
one  is  the  converse  of  the  other.  A  scale  of  rates  of 
taxation  may  be  compared  to  a  stairway.  Ascend- 
ing the  stairway,  the  rate  is  progressive;  descending, 
it  is  degressive;  but  it  is  the  same  stairway  in  either 
case.2* 


23.  For  example,    a   tax    on   incomes,    salaries   and    mortgages 
was  levied  by  a  French  ordinance  of  1356.     Incomes  of  from  1  to 
10  livres  paid  10  sols;  those  from  10  to  40  livres  paid  a  tax  of  1 
livre;  those  from  40  to  100,  2  livres. 

24.  "On  a  parfois  parle,  employant  un  neologisme,  de  1'impot 
degressif.     Un   impot   degressif,   c'est  un   impot   progressif   regarde 
par  1'autre  cote.     L'objet  est  le  meme.     L'echelle  ne  cesse  pas  d'etre 
une  echelle,  elle  ne  change  pas  selon  que  vous  la  gravissez  ou  qne 
vous  la  descendez."     Roche,  L'Impot  sur  le  Revenu,  p.   263.     "De- 
gressive taxation :     Designating  or  pertaining  to  a  plan  of  taxation 
in  which  the   rate   is  constant  on  sums   above  a  certain   limit,  but 
diminished  on  sums  counted  downward  below  the  limit."     Webster's 


12  INCOME  TAXATION 

The  proportional  rate  may  be  regarded  as  the 
normal  one  and  diminishing  rates  below  that  are  de- 
gressive. This  may  be  illustrated  by  the  Swedish  in- 
come tax  law  which  has  a  proportional  rate  of  one 
per  cent  for  all  incomes  from  4,000  to  6,000  kroner. 
From  4,000  kronor  downward  the  rates  are  rendered 
degressive  by  increasingly  large  abatements  from  the 
amount  of  income  taxed;  while  the  tax  on  incomes 
above  6,100  kronor  is  rendered  progressive  by  in- 
creasing additions  to  the  amount  of  taxable  income 
until  four  per  cent  is  reached,  after  which  it  again  be- 
comes proportional.25 

Exemptions.  The  income  tax  laws  of  nearly  every 
country  recognize  the  fact  that  there  is  a  point,  some- 
times spoken  of  as  "the  minimum  of  existence,"  be- 
low which  taxation  of  incomes  is  inexpedient.  It  is 
therefore  customary  to  specify  a  certain  sum  at  the 
bottom  of  the  scale  which  shall  not  be  liable  to  in- 
come tax  and  this  sum  is  commonly  called  an  exemp- 
tion. The  chief  argument  for  such  exemptions  is  that 
if  the  State  takes  away  any  portion  of  the  money 
which  the  working  man  or  poor  person  needs  for 


New  International  Dictionary.  The  word  "degressive"  is  not  found 
in  the  Century  nor  in  Worcester.  Its  primary  meaning  is  a  going 
down,  or  descent.  It  is  often  used  erroneously  in  the  sense  of 
regressive,  in  which  the  primary  meaning  is  a  movement  backward. 
As  examples  of  the  incorrect  definition  and  use  of  the  word  we  give 
the  following:  "Degressive  means  that  a  certain  amount  of  taxable 
income  is  exempt."  ( !)  New  Encyclopedia  of  Social  Reform. 
"Practically  this  amounts  to  degressive  taxation,  so-called,  namely, 
the  exemption  of  the  minimum  of  existence."  Daniels,  Public 
Finance,  p.  89.  In  Prof.  Ely's  "Taxation  in  American  States  and 
Cities,"  p.  77,  it  is  said  that  "A  tax  is  digressive  when  a  certain 
sum  is  exempt  from  taxation,  and  the  excess,  above  a  certain  sum, 
is  taxed  at  a  uniform  rate." 

25.     See  Chap.  X,  post.    The  Swedish  kronor  is  equal  to  26.8 
cents  of  American  money. 


DEFINITIONS  13 

actual  subsistence,  it  will  have  to  return  it  in  the  form 
of  charity.  It  is  also  true  that  the  cost  of  collection 
in  the  case  of  very  small  incomes  would  probably  ex- 
ceed the  amount  collected.  The  proposed  new  in- 
come tax  law  in  France  recognizes  the  fact  that  the 
cost  of  living  in  large  cities  is  much  greater  than  in 
small  villages,  and  proportions  the  exemption  accord- 
ing to  the  number  of  inhabitants  of  the  commune  in 
which  the  taxpayer  resides.  The  law  in  Denmark 
makes  a  similar  distinction. 

It  is  important  to  note  the  difference  between 
granting  an  exemption  of  a  certain  sum  for  all  incomes 
and  the  mere  exemptions  of  incomes  below  a  certain 
amount.  In  most  countries  whatever  exemption  is 
allowed  at  the  foot  of  the  scale  applies  to  all  incomes 
regardless  of  amount;  so  that,  if  the  exemption 
amounted  to  $600,  the  person  enjoying  an  income  of 
$1,000  would  pay  tax  on  only  $400;  while  in  other 
countries  an  exemption  of  $600  would  apply  only  to 
incomes  of  that  amount  or  less,  while  incomes  of 
more  than  $600  would  be  taxed  on  their  full  amount 
as  if  there  were  no  exemption.  In  some  of  the  in- 
come tax  laws  in  this  and  other  countries  it  is  by  no 
means  easy  to  decide  which  method  was  intended. 

Abatements.  While  exemptions  are  often  spoken 
of  as  abatements  and  vice  versa  it  seems  desirable  that 
the  word  exemption  should  be  reserved  to  designate 
the  portion  of  income  at  the  foot  of  the  scale  which 
is  free  from  taxation;  and  abatements  should  apply  to 
deductions  from  the  income,  or  tax  on  income,  above 
that  sum.  The  effect  of  abatements  which  diminish 
in  amount  as  the  income  grows  larger  is  to  give  the 


14  INCOME  TAXATION 

tax  a  more  progressive  character  than  it  would  otherwise 
have.  For  example,  the  English  income  tax  of  1806  pro- 
vided for  a  uniform  rate  of  10  per  cent  upon  all  in- 
comes. But  there  was  an  exemption  of  £50  and  a  series 
of  abatements  on  the  amount  of  tax,  which  began  with 
100  shillings,26  (10  per  cent  of  £50)  and  decreased  at 
the  rate  of  one  shilling  for  every  additional  pound  of  in- 
come up  to  £150  where  the  abatements  ceased.  The 
effect  of  these  abatements  upon  the  amount  of  tax  will 
be  seen  by  the  following  table  : 


Income  Tax  (10%)  Abatement  Net  tax 


£  50  =  1,000  s. 

100s. 

100s. 

Os. 

0 

£    51  =  1,020s. 

102s. 

99s. 

3s. 

0.29 

£  52  =  1,040s. 

104s. 

98s. 

6s. 

0.57 

£  53  =  1,060s. 

106s. 

97s. 

9  s. 

0.83 

and  so  on  up  to 

£  100  =  2,000  s. 

200s. 

50s. 

150s. 

7.5 

and  to 

£  149  =  2,980  s. 

298s. 

Is. 

297s. 

9.9 

£  150  =  3,000  s.  300  s.  0  300  s.  10. 

A  peculiar  feature  of  this  unique  plan  was  that  it 
was  an  example  of  strictly  arithmetical  progression 
as  to  incomes  of  from  £50  to  £150,  the  tax  increasing 
at  the  uniform  rate  of  three  shillings  for  each  pound  and 
thus  while  the  rate  of  taxation  was  nominally  ten  per 
cent,  the  amount  of  tax  paid  varied  from  less  than  one 
per  cent  to  ten  percent. 

Examples  of  diminishing  abatements  on  the 
amount  of  income  assessed  may  be  found  in  the  case 
of  Sweden,  the  Grand  Duchy  of  Baden,  and  the  Canton 
of  Zurich. 


26.  The  English  shilling  is  equal  to  12  d.  (pence)  or  24  1/3 
cents  of  American  money.  A  pound  is  20  shillings,  and  its  value  is 
$4.866^. 


DEFINITIONS  15 

In  several  countries  special  abatements  of  a  fixed 
sum  are  allowed  for  children  or  other  dependents 
whom  the  taxpayer  has  to  support,  and  in  some  cases 
even  for  sickness,  accident,  business  reverses,  or  other 
unusual  circumstances  affecting  the  taxpayer's  in- 
come. 

Differentiation.  This  word  has  acquired  a  slight- 
ly technical  use  in  connection  with  income  taxation.27 
It  is  most  commonly  used  in  referring  to  the  distinc- 
tion between  "earned  and  unearned"  or  "precarious 
and  permanent"  income.  "Earned"  incomes  are  those 
which  are  obtained  by  personal  exertion  while  "un- 
earned" incomes  are  such  as  are  received  from  invest- 
ments in  property,  bonds,  etc.28  It  is  argued  with 
much  force  that  these  forms  of  income  should  be 
differentiated  and  a  lighter  tax  applied  to  the  earned 
incomes.  In  some  of  the  Australian  states  incomes 
from  property  are  taxed  at  double  the  rate  which  is 
applied  to  incomes  from  personal  exertion.  It  is 
probable  that,  as  theories  of  income  taxation  are  more 
fully  developed,  further  differentiations  along  other 
lines  will  be  introduced.29 


27.  "Differentiation,    as    distinguished    from  graduation,   occurs 
when  a  different  rate  is  levied  on  different  kinds   (as  distinguished 
from  different  amounts)   of  income  or  property."     Memorandum  of 
Board  of  Inland  Revenue  (England)  in  Reports  from  His  Majesty's 
Representatives  abroad  respecting  Graduated  Income  Taxes  in  For- 
eign States,  1905,  p.  XII. 

28.  Other    expressions    are :     "precarious"    and    "permanent ;" 
but,  if  these  words  are  used — as   Sir  Henry  Primrose  has  pointed 
out — "attention  must  be  concentrated  rather  on  future  contingencies 
which  may  influence  the  treatment  of  income  by  the  prudent  holder" 
than  upon  the  mere  effort  required  to  produce  income. 

29.  The  proposed  new  French  law  provides  for  differentiation 
in  the  amount  of  exemption  according  to  the  size  of  the  city  or  com- 
mune in  which  the  taxpayers  reside,  and  a  similar  provision  is  found 
in  Denmark.     In  Spain  incomes  are  divided  into  a  great  number  of 
classes,  without  reference  to  any  apparent  basis,  and  varying  rates 
applied  to  each  class. 


1 6  INCOME  TAXATION 

Supplemental  tax  and  Super-tax.  The  progressive 
character  of  a  tax  may  be  accentuated  not  only  by 
gradually  decreasing  abatements  which  start  from  the 
bottom  of  the  scale,  but  also  by  increasing  additions 
to  the  rate  or  to  incomes  in  the  higher  grades.  Per- 
haps the  best  example  of  such  additions  is  found  in 
Sweden,  where  a  one  per  cent  rate  is  made  to  yield 
practically  a  four  per  cent  tax  as  the  result  of  arbi- 
trary additions  to  the  income.  But  the  supplementary 

tax  (Ergaenzungssteuer} ,  as  it  is  applied  in  Germany, 
is  not  such  a  tax,  but  rather  a  separate  and  distinct 

income  tax,  lower  in  rate  and  more  all-inclusive  as  to 
income  than  the  general  income  tax.  The  French 
impot  complementaire  (complementary  tax)  is  very 
similar  in  scope. 

A  supplemental  tax  can  take  the  form  of  a  sort  of 
progressive  "tax  upon  a  tax,"  as  in  the  Canton  of 
Schaffhausen,  in  Switzerland,  where  a  tax  is  levied 
upon  the  amount  of  income  tax,  the  rate  varying  from 
5  per  cent  on  amounts  between  26  and  50  francs  to 
50  per  cent  on  amounts  over  500  francs  ($100).  It 
would  seem  as  though  the  term  super-tax  could  very 
properly  be  applied  to  a  tax  which  is  thus  superim- 
posed upon  another;  yet  the  English  super-tax  is  not 
proportioned  to  the  amount  of  tax,  but  to  the  amount 
of  income.  The  Finance  Bill  of  1909,  which  has  met 
with  so  much  opposition  in  the  British  Parliament, 
contains  the  following  provision  : 

In  addition  to  the  income  tax  charged  at  the  rate  of  one 
shilling  and  twopence  under  this  Act,  there  shall  be  charged, 
levied,  and  paid  for  the  year  beginning  on  the  sixth  day  of 
April,  nineteen  hundred  and  nine,  in  respect  of  the  income 
of  any  individual,  the  total  of  which  from  all  sources  exceeds 
five  thousand  pounds,  an  additional  duty  of  income  tax  (in 


DEFINITIONS  IJ 

this  Act  referred  to  as  a  super-tax)  at  the  rate  of  sixpence 
for  every  pound  of  the  amount  by  which  the  total  income 
exceeds  three  thousand  pounds. 

The  evident  purpose  of  this  law  is  to  collect  a 
proportionally  larger  amount  from  the  larger  incomes 
without  adopting  a  progressive  rate. 

Direct  Taxes.  The  distinction  between  direct  and 
indirect  taxes  is  one  which  has  occupied  the  attention 
of  political  economists  in  this  country  and  Europe 
for  many  years.  Direct  taxes  are  sometimes  defined 
as  those  which  cannot  be  shifted,  but  this  definition 
has  received  much  well-deserved  criticism.  Another 
line  of  distinction  has  been  drawn  between  taxes  on 
production  and  taxes  on  consumption — the  former  be- 
ing termed  direct  and  the  latter  indirect  taxes.  A 
third  definition  which  has  more  to  commend  it  is  as 
follows :  direct  taxes  are  such  as  are  levied  with  refer- 
ence to  the  ability  of  the  taxpayer,  as  indicated  by  his 
property  or  income,  while  indirect  taxes  are  such  as 
are  levied  without  reference  to  the  ability  of  those 
who  may  pay  them.30 

Without  entering  into  a  discussion  of  the  theories 
which  lie  behind  these  definitions,  it  may  suffice  to 
say  that,  as  a  matter  of  practice,  particularly  on  the 
European  continent,  customs,  excises  and  stamp 
duties  are  treated  as  indirect  taxes,  while  taxes  levied 
upon  the  individual  at  regular  intervals,  upon  the 
basis  of  his  property  or  income  are  called  direct. 

In  the  following  pages  the  expressions  direct  and 
indirect  taxation  are  used  in  accordance  with  this 
practice. 


80.  Fuisting,  B.  Die  Preussischen  direkten  Steuern.  Vol.  4 
(1902),  p.  22.  Handbuch  der  politischen  Oekonomie,  Vol.  3,  p.  176. 
Ely,  Richard  T.  Taxation  in  American  States  and  Cities,  pp.  67-73. 
Bullock,  Charles  J.  Direct  and  indirect  taxes  in  economic  literature. 
Political  Science  Quarterly,  Vol.  13  (Sept.  1898),  pp.  442-476. 


CHAPTER  II. 


AUSTRALASIA.1 

NEW  SOUTH  WALES,  NEW  ZEALAND,  QUEENSLAND,  SOUTH 

AUSTRALIA,    TASMANIA,    VICTORIA,    WESTERN 

AUSTRALIA. 

There  are  undoubtedly  some  people  who  still  have 
a  vague  idea  of  Australia  as  a  half-savage,  unde- 
veloped country,  peopled  largely  by  ex-convicts.  To 
such  persons  it  may  seem  strange  that  we  should  go 
to  the  Antipodes  to  begin  our  study  of  income  taxa- 
tion; but  when  it  is  realized  that  the  Australian  Com- 
monwealth is  nearly  as  large  as  the  United  States 
(excluding  Alaska)  ;  that  it  has  a  population  of  four 
millions,  of  whom  ninety-seven  per  cent  are  of  pure 
British  descent  and  that  these  people  are  wealthy,  in- 
telligent, prosperous  and  progressive  to  a  remarkable 


1.  The  term  Australasia  is  used  somewhat  loosely  to  designate 
the  continent  of  Australia  and  the  British  Colonies  in  the  Islands  of 
Tasmania,  Fiji,  New  Guinea  and  New  Zealand.  Since  Jan.  1,  1901, 
the  Australian  Commonwealth,  consisting  of  the  States  of  New 
South  Wales,  Victoria,  South  Australia,  Queensland,  Western  Aus- 
tralia and  Tasmania,  has  had  a  constitution  much  resembling  that 
of  the  United  States  and  it  enjoys  a  large  measure  of  self-govern- 
ment. New  Zealand  is  situated  1,200  miles  from  Australia  and  is  an 
independent  colony. 


NEW  SOUTH  WALES  19 

degree,2  it  becomes  evident  that  the  experiences  of 
such  a  country  cannot  well  be  ignored.  Australia 
and  New  Zealand  have  been  called  the  world's 
laboratories  of  political  experiment.  These  countries 
have  become  notable  in  recent  years  because  of  their 
application  of  State  Socialism  to  many  phases  of  in- 
dustry. State  ownership  and  operation  of  railways 
and  telegraphs,  progressive  taxes  on  land,  incomes, 
property  and  inheritances,  restrictions  upon  owner- 
ship of  land,  minimum  wage  laws,  old  age  pensions 
and  courts  of  industrial  conciliation  and  arbitration, 
are  among  some  of  the  radical  measures  which  have 
been  adopted.  It  is  not  surprising  that  the  taxation  of 
incomes  should  meet  with  favor  in  such  a  country  and 
some  of  the  plans  which  have  been  adopted  present  unique 
and  interesting  features. 

New  South  Wales,  In  this  State,  under  the  "Land 
and  Income  Tax  Act"  of  1895,  with  its  numerous 
amendments,  there  is  a  tax  of  one  penny  on  the  pound 
upon  the  unimproved  value  of  real  estate.  The  re- 
ceipts from  this  tax  are  supplemented  by  a  propor- 
tional income  tax  levied  upon  incomes  not  derived 
from  land,  or  the  produce  or  use  of  land,  at  the  rate  of 
6  d.  in  the  pound,  or  two  and  one-half  per  cent.  This 
combined  tax  produces  about  one-twelfth  of  the  whole 
revenue,  excluding  receipts  from  public  utilities  con- 
trolled by  the  state.3  The  amount  exempted  is  £200 
($973.30).  There  is  no  differentiation  between  earned 
and  unearned  incomes.  The  yield  of  the  tax  in  1907-8 


2.  f  Mr.  T,  A.   Coghlan,   Statistician  for  New  South  Wales,  is 
authority  for  the  statement  that,  in  production  per  head,  Australasia 
surpasses  any  other  country  for  which  records  are  available. 

3.  See  testimony  of  T.  A.  Coghlan  in  Report  from  the  Select 
Committee  on  Income  Tax.  (English  Blue  Book.)  Nov.,  1906,  p,  90. 


2O  INCOME  TAXATION 

was  £215,283  ($1,046,367),  which  is  about  20  per  cent 
of  the  whole  amount  raised  by  taxation. 

New  Zealand.  As  in  the  case  of  New  South  Wales, 
the  "Act  to  regulate  the  assessment  of  land  and  in- 
come for  the  purposes  of  taxation,"  passed  Septem- 
ber 8,  1891,  makes  the  income  tax  complementary  to 
a  tax  on  the  unimproved  value  of  land,4  though  in 
New  Zealand  there  is  this  difference  that  the  land  tax 
is  graduated.  The  income  tax  applies  only  to  in- 
comes above  £300  ($1,459.95)  and  the  rate  is  6  d.  in  the 
pound  (2y2%)  on  the  amount  between  £300  and  £1,300 
and  one  shilling  (5%)  on  all  above  £1,300.  The  exemp- 
tion of  £300  does  not  apply  to  absentees  or  corpora- 
tions. In  computing  incomes  the  rents  and  profits 
derived  from  the  direct  use  and  cultivation  of  land,  as 
well  as  interest  on  mortgages,  are  not  included.  Were 
it  not  for  the  exemption  of  £300,  which  introduces  a 
slight  progression  into  the  rates,  it  might  be  said  that 
there  were  simply  two  proportional  taxes — one  of 
%%  per  cent  on  incomes  under  £1,300  and  one  of  5 
per  cent  on  all  incomes  over  £1,300.  The  abrupt 
doubling  of  the  rate  at  £1,300  will  no  doubt  result  in 
causing  many  incomes  to  be  returned  as  slightly  un- 
der that  sum,  which  are  in  fact  larger. 

The  proportions  which  the  income  tax  bears  to 
land  and  other  taxes  will  be  seen  from  the  following 
table  :5 


4.  Of  the  total  revenues,  amounting  in  1908  to  £8,766,342,  about 
two-thirds  were  met  by  the  receipts  from  customs  and  from  3  per 
cent,  to  4  per  cent,  by  death  duties   (inheritance  tax).    The  claim 
which  is  often  made  that  New  Zealand  collects  its  taxes  by  means 
of  the  "single  tax"   is   not  supported  by  the  facts.    In   1908,  the 
amount  collected  by  land  taxes,  both  proportional  and  graduated, 
was  only  6  per  cent,  of  the  total  revenue  and  only  45  per  cent,  of  the 
amount  raised  by  ordinary  taxation. 

5.  Statesman's  Handbook,  1909,  p.  329. 


QUEENSLAND  21 


Land  Tax  Income  Tax 

1904  £  324,991     £221,369  ($1,077,182)    £6,773,544 

1905  352,854  253,952  (  1,235,730)  7,022,849 

1906  385,756  261,815  (  1,273,992)  7,323,570 

1907  447,342  277,867  (  1,352,101)  8,148,175 

1908  537,846  304,905  (  1,483,668)  8,766,342 

The  total  amount  of  income  assessed  in  1908  was 
£7,260,713  ($35,330,629.46)  and  the  number  of  in- 
come taxpayers  10,420  or  1.17  per  cent  of  the  popula- 
tion.6 For  1909,  the  net  assessed  income,  after  allow- 
ing for  exemptions,  was  £7,549,596.  The  number  of 
income  taxpayers  was  10,839  and  of  land  taxpayers 
30,855.  It  would  thus  appear  that  the  average  in- 
come of  those  who  paid  income  tax  was  £696  ($3,- 
386.74).  The  comparatively  small  number  of  tax- 
payers and  the  high  average  income  are  no  doubt  due 
to  the  large  exemption.  It  is  a  significant  fact  that  in 
the  ten  years  from  1897-8  to  1907-8,  the  revenue  from 
income  tax  increased  212  per  cent,  while  the  increase 
of  population  during  the  same  period  was  only  30  per 
cent.  The  total  cost  of  assessment  and  administra- 
tion for  the  year  1908-9  was  2.05  per  cent,  while  for 
the  land  tax  it  was  3.82  per  cent.7 

Queensland.  The  Income  Tax  Act  of  1902  has 
been  amended  frequently  and  the  present  rates  are 
those  fixed  by  the  Amendment  Acts  of  1906  and  1907. 
There  is  a  differentiation,  not  only  as  to  earned  and 
unearned  incomes,  but  also  as  to  "natural  persons" 
and  corporations.  In  order  to  carry  such  differentia- 


6.  Sir  Arthur  P.   Douglas.    The  Dominion   of  New  Zealand, 
(1909)  p.  189. 

7.  New  Zealand  Official  Yearbook,  1909.    For  a  more  detailed 
account  of  the  system  of  taxation  in  New  Zealand  see   Seligman, 
Essays  in  Taxation,  2nd  Ed.,  p.  314. 


22  INCOME  TAXATION 

tion   into   effect,   all  incomes  are   divided   into  three 
classes  which  are  taxed  at  different  rates  as  follows : 

a)  Income  derived  from  personal  exertion: 

Not  exceeding  £500  ($2,433)  6d.  for  every  pound  =  2l/2%a 

Exceeding  £500  and   not   over  £1,000   ($4,866.50)  6  d. 

for  every  pound  of  the  first  £500  =  2l/2% 

and  7d.   for  all  over  £500  —  2.9  % 

Exceeding  £1,000  and  not  over  £1,500    ($7,230)  7  d. 

for  every  pound  of  the  first  £1,000  =  2  9  % 

and  8  d.  for  all  over  £1,000  —  333% 

Exceeding  £1,500          8  d.  in  the  pound  =  3.33% 

b)  Income  from  property: 

9  d.  in  the  pound  —  3.75% 

c)  Income  of  companies  and  absentees: 

1  shilling  in  the  pound  =  5.     % 

In  the  last  class  there  is  a  provision  that,  in  the 
case  of  a  company  whose  head  office  is  in  Queens- 
land, the  income  is  assessed  at  not  less  than  the 
amount  of  dividends  declared  during  the  year;  and  if 
the  profits  remain  undistributed  among  the  share- 
holders, the  rate  is  6  d.  in  the  pound  on  such  undis- 
tributed profits. 

There  is  an  exemption  of  £200  ($973.30)  which 
applies  only  to  incomes  from  personal  exertion.  If 


8.  Attention  should  be  called  to  the  fact  that  the  percentages 
given  in  this  and  subsequent  tables,  would  be  affected  by  the  amount 
of  exemption  in  all  cases  where  the  exemption  is  applied  to  all  in- 
comes. In  most  countries  the  exemption  at  the  foot  of  the  scale  is 
deducted  from  all  incomes,  but  in  some  instances  the  income  above 
the  amount  of  the  exemption  is  taxed  for  its  full  amount,  in  the 
same  manner  as  if  there  had  been  no  exemption. 

In  the  case  of  Queensland  the  £200  are  deducted  from  all  in- 
comes derived  from  personal  exertion  regardless  of  the  amount. 
Thus,  for  example,  if  such  income  amounted  to  £1,200  the  £200 
would  be  first  deducted,  leaving  £1,000  and  the  tax  would  be 

6  d.  on  the  first      £500  =  £12     Is.     8  d. 

7  d.  on  the  second  £500  ==  £14    3s.    4  d. 

Total    £26     5  s. 

It  would  thus  appear  that  the  amount  of  tax  paid  on  the  whole 
income  of  £1,200  was  not  2l/2  per  cent,  nor  2.9  per  cent.,  nor  the 
mean  between  those  amounts,  but  2.1  per  cent.  As  the  amount  of 
tax  grows  larger  the  effect  of  the  exemption  upon  the  percentage  as 
applied  to  total  original  income  is  less  and  less  noticeable.  For  the 
sake  of  simplicity  it  has,  therefore,  seemed  best  to  give  the  per- 
centages as  applied  to  each  grade  of  income  as  fixed  by  the  law. 


QUEENSLAND  23 

the  income  exceeds  £200  and  the  person  has  income 
both  from  his  services  and  from  property,  the  deduc- 
tion is  made  in  the  first  instance  from  that  portion  of 
the  income  accruing  from  personal  exertion. 

The  deductions  allowed  in  computing  income  are 
the  ordinary  expenses  of  business  such  as  wages, 
taxes,  rent,  interest  and  bad  debts  written  off  within 
the  year.  The  taxpayer  is  permitted  to  deduct  from 
his  income  all  sums  paid  for  life  insurance  up  to  £50 
($243).  The  method  adopted  to  determine  the  gross 
income  of  a  merchant  is  to  add  the  amount  of  sales, 
both  cash  and  credit,  to  the  value  of  the  stock  at  the 
end  of  the  year  and  deduct  from  it  the  amount  paid 
for  goods  during  the  year  plus  the  value  of  stock  at 
the  beginning  of  the  year. 

Income  from  dividends  is  collected  at  the  source 
and  all  persons  engaged  in  business  or  having  in- 
comes of  more  than  £100  are  required  to  make  re- 
turns. Payments  of  income  tax  can  be  made  through 
local  banks  by  simply  depositing  the  amount  in  the 
bank  to  the  credit  of  the  commissioner  who  has 
charge  of  the  collections.  The  cost  of  collection  can- 
not be  separated  from  other  expenses,  but  is  probably 
not  over  3  per  cent.  The  financial  results  for  two 
years  were  as  follows : 
Year  Source  of  Income  AmouMof  Amount 

1902-3        Personal    exertion        £4,819,837        £141,894 
Property  £   563,613        £  17,413 

Total    £5,383,450        £159,307  =  $775,187.86 
1903-4        Personal    exertion        £5,624,756        £144,487 
Property  £   414,239        £  14,196 


Total     £6,038,995        £158,683  =  $772,005.50 


24  INCOME  TAXATION 

The  number  of  income  taxpayers  in  1902  was  90,419 
or  16.7  per  cent  of  the  total  population  of  541,295. 

The  totals  collected  in  the  years  following  were: 

1904-5        £253,918  1906-7        £284,476 

1905-6         £264,957  1907-8         £271,299 

which  would  be  an  average  of  $1,306,309  per  year. 
The  income  tax  of  1906-7  amounted  to  54  per  cent  of 
the  total  revenue  from  taxation  in  that  year. 

South  Australia.  By  a  law  passed  in  1884,  South 
Australia  was  the  first  of  the  Australian  colonies  to 
adopt  an  income  tax.  The  law  makes  a  sharp  dis- 
tinction between  income  from  property  and  income 
from  personal  exertion,  the  rate  upon  the  former  class 
of  income  being  nearly  double  that  upon  the  latter. 
The  rates,  as  also  the  exemptions,  are  varied -fre- 
quently to  meet  the  fiscal  needs  of  the  state. 

Income  from  personal  exertion  is  taxed : 

On  incomes  of  £800  ($3,893.20)  or  less,  4^d.  in  the  £  =  1.87% 
On  incomes  of  more  than  £800  7    d.  in  the  £  =  2.91% 

Income  from  property  is  taxed : 

On  incomes  of  £800  or  less.  9    d.  in  the  £  =  3.75% 

On  incomes  of  more  than  £800  13^d.  in  the  £  =  5.62^2% 

The  income  of  a  company  is  presumed  by  law  to 
be  derived  from  property  and  is  taxable  at  the  higher 
rates  and  without  exemption. 

Incomes  which  do  not  amount  to  £400  ($1,946.60) 
are  entitled  to  an  exemption  of  £1509  ($730) ;  but 
such  exemption  does  not  apply  to  incomes  of  more 
than  £400  nor  to  incomes  of  companies  or  non-resi- 
dents. The  amount  of  exemption  has  been  changed 
frequently,  having  been  successively  300,  200,  125, 


9.  Since  writing  the  above  we  find  a  note  in  the  Appendix  to 
the  Australian  Yearbook  (p.  1135)  to  the  effect  that  by  the  Taxation 
Amendment  Act  of  1908  this  exemption  was  increased  to  £200. 


SOUTH  AUSTRALIA  25 

150,  135  and  150  pounds.  There  is  a  further  exemp- 
tion of  all  income  derived  from  land  which  pays  land 
tax  providing  the  income  does  not  exceed  5  per  cent 
of  the  actual  value.  Income  derived  from  land  which 
does  not  exceed  £1,000  in  unimproved  value  is  not 
taxed  if  it  is  the  result  of  labor  on  the  land. 

Taxpayers  are  required  to  make  returns  of  their 
incomes  and  the  penalty  for  failing  to  do  so  is  a  fine 
not  exceeding  £20  and  treble  the  amount  of  tax  pay- 
able. False  returns  are  punishable  as  wilful  and  cor- 
rupt perjury.  A  right  of  appeal  to  a  local  court  is 
given  at  any  time  within  two  months  after  notice  of 
assessment.  The  taxes  are  collected  for  the  most  part 
by  salaried  government  officials.  Country  postmasters 
are  also  allowed  to  receive  the  tax  and  retain  a  small 
commission  for  doing  so.  The  cost  of  collection  is  not 
known  as  it  is  blended  with  the  cost  of  collecting  the 
land  tax.  The  cost  of  collecting  both  taxes  in  1903-4 
was  a  little  over  5  per  cent  of  which  fully  3  per  cent 
was  due  to  the  income  tax. 

Financial  results.  The  amount  of  income  tax  for 
the  year  1907-8  was  £212,643  ($1,034,724.84),  which 
was  55.58  per  cent  of  the  total  revenue.  The  rapid 
and  steady  increase  of  the  income  tax  is  shown  by 
the  amounts  collected  for  the  six  preceding  years, 
namely:  1901-2,  £80,893;  1902-3,  £114,720;  1903-4, 
£121,469;  1904-5,  £136,866;  1905-6,  £128,756;  1906-7, 
£166,582. 

The  yield  of  the  tax  has  fluctuated  considerably 
from  year  to  year,  owing  to  changes  of  rates  and 
varying  financial  conditions;  but  on  the  whole  the 
tendency  has  been  to  increase  at  the  rate  of  about 


26  INCOME  TAXATION 

5  per  cent  a  year.  The  total  income  assessed  in  1902  was 
£7,607,149  ($37,016,387)  and  the  number  of  income 
taxpayers  20,009  or  5.14  per  cent  of  the  total  white 
population  of  369,176. 

Tasmania.  There  are  two  systems  of  direct  taxa- 
tion in  Tasmania,  each  having  the  central  idea  of 
taxation  according  to  financial  ability.  They  are 
designated  as 

a)  The  income  tax  proper,  and 

b)  The  "Non-inquisitorial  ability  tax." 

The  first  of  these  applies  to  those  persons  or  com- 
panies whose  incomes  are  derived  from  property  or 
investments.  The  second  is  restricted  to  those  who 
derive  their  income  from  personal  exertion.  The 
modified  scheme  of  income  tax  proper,  now  in  force, 
is  supplementary  to  the  land  tax  and  to  the  non- 
inquisitorial  tax,  and  these  taxes  are  planned  in  such 
a  way  as  to  avoid  overlapping  or  interference.  For 
example,  incomes  derived  by  a  taxpaper  from  land 
liable  to  the  land  tax,  or  from  dividends  declared  by 
companies  liable  to  taxation,  are  not  included  in  the 
income  tax  return. 

All  "incomes  proper"  are  divided  into  three 
classes: 

1.  Income  of  companies. 

2.  Income  of  persons,  derived  from  property. 

3.  Dividends  not  included  in  either  of  the  above 
classes. 

The  rate  is  one  shilling  in  the  pound  (5%),  but  the 
tax  is  made  progressive  in  the  lower  grades  by  a 
series  of  abatements,  as  will  be  seen  by  the  following 
table : 


TASMANIA  27 


Income 
Under  £100  exempt 

Abatement 

Resulting 
percentage 
of  Tax 

£100  to  £110 

£80 

1.      to  1.36 

110         120 

70 

1.84        2.08 

120          150 

60 

2.50        3. 

150          200 

50 

3.33        3.75 

200          250 

40 

4.            4.2 

250          300 

30 

4.40        4.5 

300          350 

20 

4.66        4.71 

350          400 
400  and  over 

10 
None 

4.85        4.87 
5. 

The  above  abatements  do  not  apply  to  incomes 
from  companies  or  from  prizes  in  lotteries.  In  1904 
the  number  of  persons  subject  to  the  tax  was  1,522, 
and  the  amount  of  income  assessed  was  £229,237, 
which  constituted  2.75  per  cent  of  the  total  income  of 
the  colony.  The  amount  of  income  tax  collected  in 
1904-5,  was  estimated  at  £51,400  ($250,112.40). 

The  "non-inquisitorial  ability  tax"  is  intended  to 
reach  incomes  from  personal  exertion,  the  amount  of 
such  incomes  being  determined  by  reference  to  the 
amount  which  the  taxpayer  pays,  or  is  presumed  to 
pay,  for  his  habitation.  It  is  claimed  that  there  is  a 
constant  relation,  within  certain  curves  of  gradua- 
tion, between  the  income  of  an  individual  and  the  an- 
nual rental  which  he  pays,  as  follows : 

1.  As  to  occupiers  of  ordinary  dwellings,  the  in- 
come bears  nearly  the  relation  of  seven  to  one. 

2.  As    to    ordinary    adult    lodgers    the    proportion 
which  the  amount  annually  expended  on  board  and 
lodging  bears  to  the  whole  income  is  about  two  to 
one  in  the  lower  incomes  and  about  four  to  one  in  the 
higher  incomes. 

3.  For    farmers    and    others,    whose    business    re- 
quires the  possession  of  a  larger  amount  of  real  estate 


28 


INCOME  TAXATION 


and  whose  buildings  are  inseparable  from  the  land, 
the  rental  may  amount  to  one-third  of  the  income 
derived  from  the  business,  in  case  the  culture  is  in- 
tense, or  three-fourths  of  the  income  if  a  large  area 
is  needed,  as  in  sheep  raising. 

The  relation  which  rental  bears  to  income  was  as- 
certained to  be  as  follows: 

With  incomes  of  £     50  the  rent  amounts  to  £  10  or  1/5. 


78 

150 

210 

400 

630 

900 

1,100 

1,500 

13  ' 
25 
30 
50 
70 
90 
100 
125 

1/6. 
1/6. 
1/7. 
1/8. 
1/9. 
1/10. 
1/11. 
1/12. 

Based  upon  this  table  the  "ability"  taxpayers  are 
divided  into  three  groups  as  follows : 

A.  Ordinary  occupiers  of  dwellings, 

B.  Boarders  or  lodgers, 

C.  Farmers  and  business  men. 

The  incomes  having  been  ascertained  by  reference 
to  rentals  as  above  explained,  and  an  abatement  or 
exemption  of  £30  having  been  allowed  in  each  case, 
a  low  progressive  rate  is  levied  on  all  incomes  over 
£60,  the  rate  varying  from  Id.  on  £60  to  6d.  (2.5%) 
on  all  over  £400.  Incomes,  in  classes  A  and  B  under 
£60,  pay  a  fixed  sum  of  two  and  one-half  pounds, 
while  in  class  C  incomes  of  less  than  £50  pay  the  same 
amount. 

It  was  estimated  in  1905,  that  the  number  of  "bread- 
winners" in  the  state  was  76,800  and  that  47,423,  or 
61.76%,  would  be  subject  to  the  ability  tax.  The  esti- 
mated amount  of  the  tax  was  £35,143  ($171,000),  and 
the  actual  yield  £33,517. 


VICTORIA  29 

Many  advantages  are  claimed  for  this  form  of  tax 
as  will  be  seen  by  the  following  extracts  from  an 
official  report : 

It  is  unlike  the  income  tax  in  its  entire  freedom  from 
doubt  as  to  the  amount  of  the  tax  which,  according  to  rela- 
tive financial  ability,  should  be  levied  upon  each  adult  bread- 
winner, and  particularly  so  in  its  almost  entire  freedom  from 
the  inquisitorial  features  of  prying  into  the  private  business 
affairs  of  the  taxpayer  as  regards  the  nature  and  source  of 
his  income  or  lack  of  income. 

It  prevents  dishonest  taxpayers  from  presenting  fraudu- 
lent statements  with  the  view  of  evading  their  fair  share  of 
the  tax,  thereby  involving  the  honest  taxpayers  in  a  heavier 
tax  rate,  in  order  to  make  good  such  dishonest  leakages  of 
revenue. 

It  is  estimated  that  by  this  non-inquisitorial  method  of 
assessing  the  financial  ability  of  the  taxpayer,  a  truer  ap- 
proximation to  the  ideal  of  taxation,  in  proportion  to  the 
revenue  of  rich  and  poor  respectively,  will  be  attained  than 
by  any  form  of  inquisitorial  income  tax  that  has  yet  been 
devised. 

Above  all,  it  does  not  aim  at  reaching  the  full  normal 
limit  of  the  actual  yearly  income  of  the  taxpayer,  but  is  de- 
signed rather  to  fall  short  of  it  by  means  of  a  uniform  abate- 
ment, and  it  is  simple  and  inexpensive  in  collection.10 

In  the  year  1907-8  the  combined  yield  of  the  in- 
come tax  proper  and  the  non-inquisitorial  tax  was 
£101,433  ($493,563)  which  was  3.06  per  cent  of  the 
state  taxes. 

Victoria.  The  income  tax  law  of  Victoria  is  not 
complicated  with  the  land  tax  as  in  the  other  colonies, 
and  it  possesses  some  peculiar  features  which  it  may 
be  worth  while  to  consider  more  in  detail. 


10.  Graduated  Income  Tax  (Colonies).  Return  to  an  address  of 
the  Honorable  the  House  of  Commons,  showing  which  of  the  Col- 
onies have  established  systems  of  graduated  income  tax,  etc.  Colo- 
nial Office,  June,  1905.  No.  196.  In  this  publication  71  quarto  pages 
are  given  to  Tasmania. 


3O  INCOME  TAXATION 

As  in  the  case  of  the  English  income  tax  law  of 
1842,  the  tax  was  first  levied  in  1895,  for  a  period  of 
three  years,  to  meet  a  temporary  deficiency;  but  at 
the  end  of  that  time  was  continued  as  a  permanent 
fiscal  measure.  All  incomes  are  divided  into  two 
classes,  those  from  personal  exertion  and  those  from 
property.  The  rates  are  fixed  for  each  year  by  an 
"Income  Tax  Rate  Act,"  and  for  the  year  1909  they 
were  as  follows : 

a.  For  natural  persons, 

1.  Income  from  personal  exertion 

up  to  £500  ($2,433.25) 3  d.  on  the  £  =  1.25% 

Over  £500  up  to  £1,000   ($4,866.50)  .  .4  d.     "     "     "  =  1.66% 

£1,000  up  to  £1,500   ($7,299.75).  5  d.     "     "     "  =  2.08% 

"       £1,500 6d.     "     "     "  =  2.50% 

2.  Income  from  property  double  the  above  rates. 

b.  For  companies  (except  life  insurance)  .7  d.  on  the  £  =  2.91% 
Life  insurance  companies 8  d.  on  the  £  =  3.33% 

Incomes  of  ship-owners  from  shipments  out  of 
Victoria  are  taxed  5  per  cent.  In  1909  a  rebate  of  20 
per  cent  was  allowed  to  persons,  but  not  to  com- 
panies. 

An  exemption  of  £150  ($729.97)  is  allowed  to  per- 
sons whose  incomes  are  between  £200  and  £500.  In- 
comes of  less  than  £200  ($973.30)  are  not  assessed. 
The  above  exemptions  do  not  apply  to  incomes  above 
£500,  nor  to  companies. 

Probate  and  succession  duties  are  levied  accord- 
ing to  a  graduated  scale  ranging  from  \y2  per  cent  to 
10  per  cent  and  recipients  of  legacies  and  bequests 
are  not  required  to  include  them  in  their  returns  of 
income.11 


11 .    Graduated  Income  Tax  (Colonies)  op.  tit.  (see  note  10). 


VICTORIA  ^I 

The  deductions  allowed  from  income  are  quite 
liberal  and  are  as  follows :  "Interest  paid  on  mort- 
gage of  property,  repairs  to  property  or  plant,  but  not 
including  cost  of  additions  or  improvements,  taxes, 
fire  insurance,  fidelity  guaranty,  etc.,  premiums  not 
exceeding  £50,  gifts  exceeding  £20  each  to  public  or 
charitable  institutions,  calls  or  contributions  paid  into 
companies  in  liquidation  or  mining  companies  carry- 
ing on  operations  in  Victoria,  rent  of  business  prem- 
ises and  salaries  to  employees,  bad  debts,  deprecia- 
tion and  wear  and  tear  of  machinery,  implements, 
etc.,  used  for  the  purpose  of  trade,  cost  of  sustenance 
of  employees,  when  supplied  in  addition  to  wages  or 
salary  of  such  employees,  and  losses  incurred  in  the 
production  of  income."  No  deduction  is  allowed  for 
the  cost  of  maintenance  of  the  family  of  a  taxpayer. 

As  to  the  administration  of  the  tax  there  are  the 
usual  requirements  of  a  declaration  of  income  on  the 
part  of  each  taxpayer,  which  may  be  sent  to  the  Com- 
missioner of  Taxes  through  the  mails  free  of  postage. 
There  is  no  collection  at  the  source  except  in  so  far 
as  the  companies  pay  income  taxes  which  would 
otherwise  be  payable  by  the  stockholders  individual- 
ly; but  the  income  tax  office  has  a  system  of  checking 
returns  by  means  of  information  carefully  secured 
and  tabulated  in  reference  to  interest,  rents,  salaries, 
etc.,  which  is  a  material  aid  in  preventing  fraud. 

The  financial  results  may  be  seen  by  the  follo^-ing 
table  of  income  taxes  collected  for  a  period  of  five 
years  (pounds  and  shillings  reduced  to  American  cur- 
rency) :12 


12.     See  Consular  Report  in  Congressional  Record,  Vol.  45,  p. 
1110. 


32  INCOME  TAXATION 


Year 

Tax  on  Income 
from  personal 
exertion. 

Tax  on  Income     T  <•  1  T          Average  per 
from  Property                                Taxpayer 

1904 

$    971,927 

$549,573 

$1,521,500 

$31.60 

1905 

1,122,881 

437,449 

1,560,330 

34.70 

1906 

1,106,106 

444,466 

1,550,773 

33.99 

1907 

1,256,107 

458,127 

1,714,234 

49.77 

1908 

1,100,466 

360,589 

1,461,055 

42.07 

The  average  number  of  income  taxpayers  for  the 
same  period  was  45,548  or  3.6  per  cent  of  the  popula- 
tion of  1907.  That  the  number  is  not  larger  is  no 
doubt  due  to  the  comparatively  large  exemption,  and 
the  fact  that  23  per  cent  of  the  tax  was  paid  by  com- 
panies. If  the  revenues  of  the  state  from  railroads, 
street  cars,  waterworks  and  other  public  utilities 
owned  by  the  state  are  deducted,  it  will  be  found  that 
the  income  tax  contributed  about  one-eighth  of  the 
total  revenue,13  and  32.3  per  cent  of  the  amount  raised 
by  taxation. 

The  cost  of  collection  for  the  year  ending  June  30, 
1908,  was  $67,545.65,  or  a  little  over  4  per  cent.  This 
is  somewhat  higher  than  usual,  but  it  has  been  found 
that  money  expended  in  securing  a  more  thorough 
administration  of  the  tax  was  many  times  repaid  by 
the  increase  in  the  amount  of  tax  collected. 

The  distinction  between  income  from  personal 
exertion  and  that  from  property  is  not  always  easy. 
For  example,  many  of  the  farmers  own  the  land  which 
they  cultivate,  so  that  their  income  is  the  joint  pro- 
duct of  labor  and  property,  and  in  such  cases  the  line 
is  not  easily  drawn.  In  the  practical  administration 
of  the  law  this  difficulty  is  met  by  assuming  that  a 


13.  Report  from  the  Select  Committee  on  the  Income  Tax  with 
the  proceedings  of  the  Committee  (England),  1906.  No.  365,  p.  90. 
See  also  Official  Yearbook  of  the  Commonwealth  of  Australia,  No. 
2,  1909,  pp.  822  and  837. 


WESTERN  AUSTRALIA  33 

reasonable  interest  on  the  estimated  value  of  the  land 
is  the  amount  of  income  from  property  and  that  the 
remainder  may  be  fairly  ascribed  to  personal  exer- 
tion. 

Western  'Australia.  On  the  20th  of  December,  1907, 
the  first  income  tax  law  in  Western  Australia  was 
passed  under  the  title  of  the  Land  and  Income  Tax 
Assessment  Act  and,  on  the  same  day,  the  so-called 
Land  Tax  and  Income  Tax  Act  was  passed,  declar- 
ing rates  for  the  year  ending  June  3,  1908.  Under  the 
first  named  Act  taxes  in  excess  of  one  pound  were 
payable  in  two  equal  half-yearly  instalments.  Under 
the  second  Act  only  half  the  tax  levied  for  1907-8  was 
required  to  be  collected.  The  result  was  that  the  two 
laws  became  effectual  on  January  1,  1908.  The  rate 
is  proportional  at  4  d.  in  the  pound  (1  2/3%)  on  all 
incomes  in  excess  of  £200.  There  is  a  supplementary 
tax  of  fifty  per  cent  of  the  general  income  tax  on  the 
income  of  any  person  who  has  not  been  a  resident  of 
the  Commonwealth  during  any  part  of  the  year  pre- 
ceding the  year  of  assessment  unless  he  has  been 
absent  on  public  services. 

The  exemptions  comprise : 

a.  Incomes  not  exceeding  £200  per  annum. 

b.  Revenues  of  municipal  corporations,  etc. 

c.  The  incomes   of   life   insurance   companies   and 
companies  not  engaged  in  business  for  profit. 

d.  Dividends  of  companies  subject  to  duty  under 
the  Dividend  Duties  Act  and  of  the  Government  Sav- 
ings Bank  and  the  Agricultural  Bank. 

e.  Income  of  the  Governor  of  the  State  and  all 
religious,  charitable  and  educational  institutions. 


34  INCOME  TAXATION 

f.  Incomes  from  government  debentures. 

g.  Income  derived  from  land  on  which  land  tax 
is  payable. 

Among  the  deductions  and  abatements  are  costs 
of  repairs  and  expenses  of  producing  income;  life  in- 
surance to  the  amount  of  £50;  the  amount  paid  to  a 
taxpayer's  sons  and  daughters  over  the  age  of  six- 
teen years  who  are  employed  in  the  taxpayer's  busi- 
ness; and  a  sum  representing  £10  for  each  child  under 
the  age  of  sixteen  residing  with,  and  dependent  upon 
the  taxpayer. 

In  addition  to  the  income  tax  there  is  a  Dividend 
Duties  Act,  which  was  passed  December  20,  1902,  and 
amended  in  1906.  This  act  requires  that  within  seven 
days  after  the  declaration  of  a  dividend  by  a  company, 
such  company  shall  pay  the  Colonial  Treasurer  a  duty 
equal  to  one  shilling  for  every  pound  (5%)  of  the 
amount  of  such  dividend.  Insurance  companies, 
other  than  life  insurance  companies,  are  required  to 
pay  one  per  cent  of  their  premiums,  and  shipping 
companies  pay  five  per  cent  on  all  inward  and  out- 
ward traffic,  including  passenger  fares  and  five  per 
cent  of  the  profits  on  sales  of  coal  or  other  goods.  It 
should  perhaps  be  mentioned  that  Western  Australia 
has  a  tax  on  the  "unimproved  value"  of  land.  The 
rate  is  one  penny  in  the  pound,  or  four-tenths  of  one 
per  cent. 

The  amount  of  income  tax  proper  in  1907-8  was 
£5,933,  while  the  dividend  tax  amounted  to  £108,034, 
making  a  total  of  £113,967  ($554,563).  This  amount 
constituted  41  per  cent  of  the  whole  revenue  from 
taxation  for  the  same  year,  but  only  a  small  portion 
of  the  income  tax  was  collected,  as  the  Act  did  not 
take  effect  till  January  1,  1908. 


AUSTRIA,    BELGIUM,    BRITISH    COLUMBIA, 

CANADA,  CAPE  OF  GOOD  HOPE, 

DENMARK. 


AUSTRIA. 


The  beginning  of  income  taxation  in  Austria  may 
be  found  as  far  back  as  1702,  when  a  law  \vas  passed 
requiring  a  declaration  on  the  part  of  the  taxpayer, 
providing  for  collection  at  source  and  for  the  exemp- 
tion of  property  and  income  below  a  certain  amount. 
From  1799  to  1829,  personal  property  was  reached 
by  class  taxes  (Klassensteuerri)  which  were  graduated 
at  first  according  to  the  occupation  or  social  standing 
of  the  individual  and  afterwards  in  proportion  to 
wealth.  These  taxes  were  levied  upon  a  progressive 
scale  in  accordance  with  which  persons  having  from 
100  florins  ($50)  to  150,000  florins  ($75,000)  were 
taxed  at  rates  which  increased  gradually  from  two 
per  cent  to  twenty  per  cent.  An  ordinance  of  Octo- 
ber 5,  1829,  abolished  this  progressive  feature  how- 
ever and  other  levies,  more  in  the  nature  of  a  general 
property  tax,  were  substituted. 

In   1848,   as   a   result   of   the   political    disturbances 
and    financial    depression,    many    reforms    were    at- 


36  INCOME  TAXATION 

tempted,  not  the  least  important  of  which  was  a  law 
passed  October  29,  1849,  which  provided  for  a  general 
income  tax.  Like  the  English  income  tax  law  of 
1842,  it  was  originally  designed  as  a  temporary  ex- 
pedient to  meet  the  extraordinary  needs  of  the  State. 
Although  the  preamble  of  the  law  contained  a  recital 
to  the  effect  that  it  should  apply  to  the  year  1850  only, 
as  a  matter  of  fact  it  remained  in  force  for  nearly  half 
a  century  and  forms  the  basis  of  the  present  law, 
which  was  passed  in  1896,  and  went  into  effect  Janu- 
ary 1,  1898.  During  this  long  period  the  law  of  1849 
experienced  many  changes  and  eventually  became  so 
involved  and  complicated  that — as  one  writer  ex- 
presses it — "it  was  full  of  contradictions  and  make- 
shifts." 

As  a  fiscal  measure  it  fell  far  short  of  expectations 
and  it  was  always  looked  upon  with  great  disfavor  by 
the  tax-paying  public.  The  causes  of  its  unpopularity 
are  not  far  to  seek.  Instead  of  being  introduced  at  a 
low  rate  and  as  a  substitute  for  some  undesirable  and 
unpopular  tax,  it  was  imposed  in  the  first  instance  at 
excessively  high  rates  and  without  any  promise  of  re- 
duction in  other  taxes.  It  is  therefore  not  surprising 
that  a  great  number  of  the  taxpayers  looked  upon  the 
tax  as  an  oppressive  and  unreasonable  burden  which 
they  were  justified  in  evading  so  far  as  possible.  There 
grew  out  of  this  state  of  affairs  a  continuous  struggle 
between  those  upon  whom  the  tax  bore  most  heavily 
and  the  officials  who  were  attempting  to  enforce  the 
tax.  The  conflict  might  have  led  to  serious  conse- 
quences had  the  contending  parties  not  finally  reached 
a  tacit  understanding  that  a  certain  moderate  amount 


AUSTRIA  37 

of  deceit  and  undervaluation  would  be  tolerated.  But, 
as  the  amounts  of  certain  classes  of  income,  such  as 
salaries,  pensions  and  dividends,  which  were  easily 
collectable  at  source,  were  well  known,  evasion  in 
such  cases  was  impossible  and  the  burden  of  the  tax 
was  therefore  very  unequally  distributed.  The  citi- 
zens who  were  taxed  upon  the  full  amount  of  their  in- 
comes, were  placed  at  a  great  disadvantage  as  com- 
pared with  others  who  found  means  to  escape  the  tax. 
These  unfortunate  conditions  have  operated  to  render 
the  administration  of  the  new  law  of  1896  more  diffi- 
cult than  it  otherwise  would  have  been.  The  Minister 
of  Finance  has  found  it  necessary  to  make  a  strong 
effort  to  develope  the  tax-conscience  (Steuermoral) 
of  the  people,  and  the  more  liberal  provisions  of  the 
new  law  have  tended  to  make  that  effort  successful. 

Without  going  into  full  details  the  following  brief 
statement  of  a  few  of  the  chief  features  of  the  present 
law  may  be  of  interest: 

Definition  of  income.  Taxable  income  is  defined 
as  the  sum  of  all  receipts  in  money,  or  objects  having 
money  value,  accruing  to  the  taxpayer.  This  includes 
the  rent  of  a  house  occupied  by  the  owner,  or  of  a 
house  for  which  he  does  not  pay  rent;  it  includes  also 
the  value  of  one's  own  produce  which  is  consumed  by 
the  members  of  the  household,  first  deducting  all  ex- 
penses incurred  in  getting,  maintaining  and  preserv- 
ing1 the  said  produce  and  all  interest  paid  on  indebted- 


1.  In  the  form  for  the  declaration  the  idea  conveyed  is  some- 
what broader,  a  deduction  being  permitted  of  all  sums  expended  for 
the  "production,  protection  and  conservation  of  the  income."  These 
rather  indefinite  terms  have  opened  the  doors  for  much  fraud  and 
evasion,  and  Victor  Marce,  in  his  monograph  upon  L'  Impot  sur  le 


38  INCOME  TAXATION 

ness.  Receipts  from  legacies,  insurance  and  gifts  are 
not  treated  as  income,  but  as  additions  to  capital. 
There  may  be  deducted  from  income,  moneys  paid 
for  insurance  (but  only  to  a  limited  extent)  and  no 
allowance  can  be  made  for  expenses  which  tend  to  in- 
crease one's  capital,  or  for  loss  of  capital. 

Rates  of  taxation.  Incomes  of  less  than  1,200 
crowns  (Kronen)2  are  exempt.  For  the  first  class  in 
the  scale,  comprising  incomes  of  from  1,200  to  1,250 
crowns  inclusive,  the  tax  amounts  to  7  crowns  20 
heller;  and  as  the  incomes  increase,  the  rate  is  grad- 
ually raised  until,  for  incomes  of  from  92,000  to  96,000 
crowns,  it  reaches  3,720  crowns.  From  96,000  to 
200,000  crowns  there  is  an  increase  in  rate  of  200 
crowns  for  every  4,000  crowns  of  income.  From 
200,000  to  210,000  crowns  the  tax  is  9,300  crowns; 
and  from  210,000  crowns  upwards  the  rate  of  tax  in- 
creases 500  crowns  for  each  10,000  crowns  of  income.3 


Revenu  en  Autriche,  has  characterized  them  as  "formule  vague, 
elastique,  gut  prete  ou  a  I'arbitraire  de  la  part  du  fiscou  a  la  fraude 
de  la  part  du  contribuable,  ou  si  I'un  et  I'autre  sont  pleins  de  bonne 
•volonte,  s'ils  veulent  faire  ou  contrdler  une  declaration  en  pleine 
conscience,  le  fisc  et  la  contribuable  doivent  etre  dans  I'embarras  le 
plus  grand  pour  resoudre  en  chiffres  un  probleme  aussi  delicat." 

2.  An   Austrian  krone  is   practically  one-half  of   a  gulden  or 
20.3  cents.     The  krone  is  the  equivalent  in  value  of  100  heller  and 
the  heller  is  therefore  worth  about  1/5  of  a  cent.     Some  of  the  older 
statistics   are   given    in    florins.     The   value   of   the    Austrian   florin 
(gold)   was  48.2  cents,  but  it  has  not  been  coined  since  1892.     The 
silver  florin  is  of  the  same  value  as  the  gulden  and  is  equivalent  to 
two  crowns  or  about  40.6  cents.     The  value  of  the  gold  florin  was 
48.2  cents,  but  it  has  not  been  coined  since  1892.     It  should  be  re- 
membered that  the  values  of  foreign  coins  as  expressed  in  American 
money  are  not  stable,  but  they  are  subject  to  slight  fluctuations.    The 
values  adopted  in  this  book  are  those  fixed  by  the  Treasury  Depart- 
ment of  the  United  States,  as  given  in  Vandergriff's  U.  S.  Tariff  for 
1909,  pp.  26-27. 

3.  The  total  scale,  up  to  96,000  crowns,  comprises  65  grades  and 
is  given  in  full  in  Appendix  D. 


AUSTRIA 


39 


An  analysis  of  these  rates  will  show  that  they  are 
asymptotic,  that  is,  continually  approaching,  but  never 
quite  reaching-,  the  five  per  cent  limit.  Reduced  to 
percentages  we  find  that 

1,200  crowns  ($     240)  would  pay  a  tax  of  0.6  per  cent. 


2,000    ' 

(    400) 

1.   ' 

6,000    ' 

(  1,200) 

2.   ' 

20,000 

(  4,000) 

3.   ' 

60,000 

(  12,000)   " 

3.5  ' 

96,000 

(  19.200) 

4.   ' 

From  this  point  the  rate  increases  more  slowly, 
never  quite  reaching  five  per  cent. 

Abatements.  Heads  of  families,  whose  incomes 
do  not  exceed  4,000  crowns,  are  entitled  to  a  reduc- 
tion of  one-twentieth  of  their  income  for  each  mem- 
ber of  the  family  above  two  (wife  not  counted)  who 
is  entirely  dependent  upon  them  for  support.  The 
effect  of  such  abatement  in  any  case,  whether  much 
or  little,  is  to  put  the  taxpayer  at  least  one  grade 
lower  in  respect  of  income.  There  is  a  further  pro- 
vision that  taxpayers,  with  incomes  of  less  than  10,000 
crowns,  who  suffer  serious  losses  by  sickness,  acci- 
dent or  misfortune,  may  have  their  taxable  income 
lowered  to  an  amount  not  to  exceed  three  grades  or 
classes.  But  these  abatements  are  somewhat  counter- 
balanced by  the  fact  that  the  family  and  not  the  in- 
dividual is  the  real  fiscal  unit.  The  result  is,  that 
while  no  member  of  the  family  may  have  an  income 
equal  to  the  exemption,  the  combined  incomes  may 
be  sufficient  to  incur  a  considerable  tax. 

Administration.  For  every  political  district  and 
city  of  over  10,000  inhabitants  an  assessment  com- 
mission is  provided  whose  duty  it  is  to  determine  the 
amount  of  income  of  each  "Personaleinkommensteuer- 
pflichtigen"  (individual-liable-to-income-tax).  The  num- 


4°  INCOME  TAXATION 

her  of  members  of  the  commission  is  determined  by  the 
Minister  of  Finance  who  names  the  chairman  and  one- 
half  of  the  members.  The  other  half  of  the  members 
are  elected  by  the  taxpayers. 

There  is  a  Berufungskommission,  or  Appeal  Board, 
to  which  both  the  Assessment  Board  and  the  person 
assessed  may  appeal.  In  case  of  dissatisfaction  with 
the  decision  of  the  Appeal  Board,  a  second  appeal 
may  be  had  to  the  courts.  Agreements  that  the  in- 
come tax  shall  be  paid  by  any  other  person  than  the 
one  properly  liable  therefor  are  not  legally  enforce- 
able. False  statements  made  in  the  declarations,  or 
orally,  by  means  of  which  reductions  in  the  tax  are 
obtained,  are  punished  by  a  fine  of  from  three  to  nine 
times  the  amount  by  which  the  tax  was  thus  im- 
properly reduced.  There  is  also  a  penalty,  which  may 
amount  to  a  fine  of  2,000  crowns,  or  three  months  im- 
prisonment, upon  the  officials  concerned  with  the  as- 
sessment and  collection  of  the  tax,  for  improperly 
divulging  the  information  which  they  obtain  as  to  in- 
come.4 The  tax  is  payable  in  two  instalments,  one 
on  June  first  and  one  on  December  first. 

The  taxpayer  is  required  to  give  a  detailed  list  of 
his  receipts  from  all  sources  and  if,  after  official  notifi- 
cation, he  still  fails  to  make  the  proper  declaration, 
he  is  subject  to  a  fine  of  200  crowns.  In  default  of  a 
declaration,  the  officials  are  authorized  to  resort  to 
other  sources  of  information  and  make  an  estimate 


4.  Reisch.  Das  Gesetz  vom  25ten  Oktober  R.  G.  B.  1.  Be- 
treffend  die  direkten  Personalsteuern,  1905.  See  also  R.  Sieghart, 
The  Reform  of  Direct  Taxation  in  Austria,  Economic  Journal,  VIII 
(1898)  p.  173. 


AUSTRIA  41 

based  largely  upon  les  signes  exteneurs.  Of  these  ex- 
terior signs  the  rent  paid  by  the  taxpayer  for  his 
habitation  is  considered  most  significant  and  it  is  cus- 
tomary to  estimate  the  income  at  a  sum  equal  to  five 
times  the  amount  of  such  rent.  The  officials  do  not 
have  the  right  to  examine  the  taxpayer's  books  of  ac- 
count, but  any  citizen  may  produce  his  books  before 
the  Commissioners  in  support  of  the  facts  stated  in 
his  declaration. 

Supplementary  tax  on  salaries.5  In  addition  to  the 
general  income  tax,  all  persons  who  receive  from  the 
State,  or  corporations,  or  individuals,  an  annual 
salary  or  allowance  amounting  to  6,400  crowns  or 
more,  are  subject  to  a  supplementary  tax.  The  scale 
of  rates  is  progressive,  rising  from  fourth-tenths  of 
one  per  cent  on  incomes  from  6,400  to  8,000  crowns 
to  six  per  cent  on  incomes  of  30,000  crowns  or  more. 
The  person  or  corporation  who  pays  the  salary  is  re- 
quired to  retain  the  tax  for  each  month  and  turn  it 
over  to  the  Government  within  fourteen  days  from 
the  last  day  of  the  month. 

The  relative  importance  of  the  Austrian  income 
tax  as  a  fiscal  measure  is  shown  by  the  budget  of 
1908,  in  which  the  total  receipts  of  the  Kingdom  are 
estimated  at  2,149,000,000  crowns,  or  $529,800,000. 
Of  this  sum  323,500,000  crowns  ($64,700,000)  were 


5.  "Besoldungsteuer  von  hoeheren  Dienstbezuegen."  In  1899 
this  tax  was  paid  by  8,700  persons,  of  whom  3,800  were  in  the  class 
having  salaries  of  6,400  to  8,000  crowns;  1,295  in  the  class  having 
salaries  between  8,000  and  9,000  crowns ;  813  in  the  class  9,000-10,000 
crowns;  1,038  in  the  class  10,000-12,000  crowns  and  from  this  point 
the  number  steadily  diminished  until  for  the  highest  class,  having 
salaries  over  30,000  crowns  there  were  only  125  taxpayers.  Regime 
Fiscal  des  Valeurs  Mobilieres  en  Europe  (Jobit)  2  Vols.  Published 
by  French  Ministry  of  Finance  1901,  Vol.  1,  p.  156. 


42  INCOME  TAXATION 

levied  as  "direct  taxes"  including  60,900,000  crowns 
($12,180,000)  for  the  income  tax.6  It  thus  appears 
that  the  income  tax  contributed  only  about  2.8  per 
cent  of  the  total  revenue  and  18.8  per  cent  of  the  direct 
taxes. 

It  must  be  admitted,  however,  that  in  spite  of  the 
unpopularity  of  the  law,  the  amount  collected  by  in- 
come taxation  in  Austria  has  been  increasing  at  a 
more  rapid  ratio  than  the  tax-paying  population.  The 
amount  of  taxable  income  increased  25  per  cent  in  the 
years  1898  to  1903,  and  19  per  cent  from  1903  to  1907. 
The  total  increase  in  amount  of  income  for  the  ten  years 
1898  to  1907  inclusive  was  49  per  cent,  while  the  in- 
crease in  the  number  of  taxpayers  for  the  same  period 
was  36  per  cent. 

The  amount  of  the  yield  of  the  income  tax  was,7 


for  1904,    57,298,194  Cr.    ( 


1905,     58,469,660  "     ($11,693,932) 


1906,     63,496,685  "     ( 


11,459,639) 


12,699,337) 


"    1907,  65,346,945    "  ($13,069,389) 

In  1907  the  total  income  returned  was  3,927,631,- 
661  crowns,  which  was  reduced  by  various  exemp- 
tions and  abatements  to  3,434,355,573  crowns  ($686,- 
871.115).  The  number  of  income  taxpayers  was 
1,048,689,  or  3.78  per  cent  of  the  population.  If  the 
families  of  these  taxpayers  were  included,  the  num- 
ber would  be  3,179,435  or  11.47  per  cent  of  the  popu- 
lation. It  would  therefore  appear  that  the  average 
income  of  each  taxpayer  was  3,275  crowns,  or  $655. 


6.  Handwoerterbuch    der    Staatswissenschaften,    3d    Ed.    1909, 
Vol.  Ill,  p.  730. 

7.  Mittheilung  des  K.  K.  Finanz-Ministeriums,  1908.    Vol.   14, 
p.   1081.    This  book  contains  a  great  amount  of  detailed  statistics 
regarding  the  Austrian  income  tax,  but  is  not  well  arranged,  nor  are 
the  statistics  sufficiently  summarized. 


AUSTRIA 


43 


The  average  amount  of  income  tax  paid  by  each  tax- 
payer was  62.31  crowns  ($12.46)  or  an  average  of 
2.36  crowns  (47c)  for  each  person  in  the  Kingdom. 
The  average  percentage  of  the  whole  income  tax  to 
total  amount  of  income  returned  was  1.90  per  cent.8 

A  classification  of  the  tax  in  1907,  according  to 
amount  of  income  returned,  shows  that  the  number 
whose  income  was 

less  than  1,800  crowns  ($     360)  was  496,949  or    47.39% 

between 


1,800   and     3,600   Cr. 

(        720) 

362,028 

34.52% 

3,600     "       7,200     " 

('    M40) 

130,707 

12.46% 

7,200      "      12,000     " 

(     2,400) 

33,478 

3.20% 

12,000            40,000     " 

(     8,000) 

21,294 

2.03% 

40,000     "   200,000     " 

(  ,40,000) 

3,874 

.37% 

200,000 

359 

.03% 

over 

Total     1,048,689        100.     % 

The  taxpayers  having  incomes  from  40,000  to 
200,000  crowns,  although  constituting  a  trifle  over  a 
third  of  one  per  cent  of  the  whole  number,  paid  nearly 
17  per  cent  of  the  whole  tax;  while  the  highest  class, 
which  constituted  only  three  one-hundredths  of  one 
per  cent,  paid  13.36  per  cent  of  the  whole  tax.  In 
1905,  according  to  M.  Berthelemy,  81.76  per  cent  of 
the  income  taxpayers  paid  only  23  per  cent  of  the 
total  tax,  while  5^2  per  cent  of  them  paid  60  per  cent 
of  the  tax.  The  5^  per  cent  who  paid  60  per  cent  of 
the  tax  constituted  only  t\vo-tenths  of  one  per  cent  of 
the  whole  population  of  the  country.9 

There  is  some  divergence  of  opinion  among  emi- 
nent authorities  as  to  whether  or  not  the  Austrian  in- 
come tax  can  be  considered  a  success.  Among  the 


8.  Die  Ergebnisse  der  Einkommensteuerstatistik  in  Oesterreich, 
by  Dr.  Friederich  Leiter,  1907,  p.  39. 

9.  Berthelemy.     Bulletin  de  la  Societe  de  Legislation  comparee. 
March,  1907,  p.  129. 


44  INCOME  TAXATION 

higher  officials  of  the  government  the  opinion  seems 
to  prevail  that  the  law  is  fairly  satisfactory.  Baron 
von  Stoerck,  President  of  the  General  Association  of 
Agricultural  Societies  in  Austria,  has  said: 

In  regard  to  the  personal  income  tax  I  wish  to  say  that 
it  gives  general  satisfaction.  Complaints  regarding  evasion 
of  the  tax  are  not  frequent.  The  administration  of  the  law 
does  not  meet  with  any  particular  difficulty  and  the  people 
have  become  reconciled  to  it. 

Dr.  Friederich  von  Wieser,  a  professor  in  the 
German  University  at  Prague,  who  has  made  a  care- 
ful study  of  the  Austrian  systems  of  taxing  incomes, 
is  not  so  optimistic.  He  says : 

The  principal  difficulties  are  such  that  the  best  of  ad- 
ministrations cannot  surmount  them  at  the  first  attempt. 
They  consist  in  the  passive  opposition  of  the  poorer  classes ; 
the  shrewd  and  effective  opposition  of  the  wealthier  tax- 
payers, whose  widely  extended  financial  activities  favor  con- 
cealment ;  the  great  difficulty  of  valuing  the  income  of  the 
farmer ;  and  lastly,  the  practical  invisibility  of  certain  forms 
of  personal  income.10 

In  any  case  it  must  be  conceded  that  the  income 
tax  has  not  met  with  so  great  a  measure  of  success  in 
Austria  as  in  Prussia  and  some  other  neighboring 
states  and  this  is  no  doubt  due  both  to  inherent  de- 
fects in  the  law  itself  and  to  the  peculiar  conditions 
under  which  it  is  administered. 


BELGIUM. 


It  is  often  said  that  Belgium  is  one  of  the  few 
European  countries  which  does  not  have  an  income 
tax.  This  statement  is  true  so  far  as  the  general 


10.    Dr.  Friederich  Freiherr  von  Wieser.    Die  Ergebnisse  und 
die  Ansichten  der  Personaleinkommensteuer  in  Oesterreich,  1901. 


BELGIUM  45 

Government  is  concerned,  but  in  the  Province  of 
Brabant,  there  are  77'  Communes  out  of  a  total  of  344, 
which  levy  local  taxes  based  upon  income.  The 
method  followed  in  all  but  one  of  the  Communes  may 
be  briefly  outlined  as  follows : 

The  Communal  Council  is  required  to  ascertain 
"le  revenu  presume" — the  probable  or  presumable  in- 
come— of  each  person  in  the  commune  (except  work- 
ing men  who  are  exempt  from  the  tax).  In  order  to 
accomplish  this,  the  council  is  expected  to  estimate 
the  personal  income  of  the  individual  as  it  is  indicated 
by  his  salary,  business,  profits,  character  of  his  resi- 
dence, value  of  his  furniture,  manner  of  living,  etc. 
Upon  the  basis  of  the  information  obtained  by  the 
Council  a  role  de  cotizations,  or  assessment  roll,  is 
prepared  which  is  open  to  inspection  by  the  tax- 
payers, for  at  least  fifteen  days.  The  Council  act  as  a 
sort  of  board  of  review,  and  make  a  report  of  their 
proceedings  to  the  Deputation  permanente  which  also 
reviews  the  assessment  and,  if  it  is  found  correct, 
makes  an  order  rendering  it  executory.  To  ascertain 
the  rate,  the  amount  of  tax  to  be  raised  is  divided  by 
the  total  taxable  income.  Thus,  if  2,000  francs  were 
the  amount  of  tax  and  the  total  income  assessed  were 
400,000  francs  the  rate  would  be  one-half  of  one  per 
cent. 

This  communal  tax  is  not  designed  to  produce 
any  large  amount  of  revenue ;  but  is  looked  upon  as 
sort  of  a  convenient  "stop-gap"  to  meet  any  deficiency 
which  may  remain  in  the  communal  budget  after  all 
the  usual  sources  of  revenue  have  been  utilized. 


46 


INCOME  TAXATION 


In  the  Commune  of  Ixelles  there  is  a  graduated 
tax  based  upon  income,  but  the  method  of  ascertain- 
ing the  approximate  income  is  quite  novel.  The 
amount  of  income  is  not  determined  by  exterior  signs, 
as  in  the  other  communes;  but  is  based  upon  the 
amount  of  personal  property  tax  paid  to  the  general 
government.  If  the  amount  thus  paid  is  less  than 
400  francs  ($77.20)  it  is  multiplied  by  60;  if  between 
400  and  800  francs  ($154.40),  by  55;  if  between  800 
and  1,200  francs  ($231.60),  by  50  and  if  above  1,200 
francs,  by  45.  The  product  in  each  case  is  "le  revenu 
presume,"  or  assumed  income.  The  object  of  the  re- 
gressive method  of  determining  income  is  not  quite 
apparent;  but  the  result  of  such  a  method  is  partly 
counter-balanced  by  the  accompanying  exemption 
and  the  abatements.  The  first  1,000  francs  ($193)  of 
income  is  exempt,  and  there  is  a  uniform  rate  of  one 
per  cent. 

The  second    1,000  fr.  is  taxed  upon  only  2/10  or  200  fr. 


'     third        1,000 

3/10 

300 

'     fourth      1,000 

4/10 

400 

'     fifth          1,000 

5/10 

500 

'     sixth        1,000 

6/10 

600 

'    seventh    1,000 

7/10 

700 

'    eighth      1,000 

< 

c 

' 

'       8/10 

800 

'    ninth        1,000 

* 

' 

'       9/10 

900 

'    tenth      1,000   "   and  all  above  are  taxed  at  the  full  rate. 

The  amounts  of  the  assessments  thus  obtained  are 
not  published.11 


ll.  I  am  indebted  to  the  Honorable  Henry  M.  Wilson,  United 
States  Ambassador  to  Beligum,  for  the  information  in  regard  to 
local  income  taxes  in  Belgium,  which  was  received  in  the  form  of  a 
communication  from  the  Governor  of  the  Province  of  Brabant. 


BRITISH  COLUMBIA  47 

BRITISH   COLUMBIA. 

Of  the  ten  subjects  of  taxation  which  are  men- 
tioned in  the  Assessment  Act  the  sixth  is  income. 
The  first  $1,000  is  exempt  and  the  rates  are  as  fol- 
lows: 

Class  A.  Up  to              $2,000  \V2% 

"       B.  $2,000  to          $3,000  iytfo 

"       C.  $3,000  "            $4,000  2% 

"       D.  $4,000  "            ^7,000  3% 

"      E.  In  excess  of  $7,000  4% 

The  tax  is  due  January  second  in  each  year,  and 
a  discount  of  ten  per  cent  is  allowed  if  the  taxes  are 
paid  on  or  before  June  30th. 

The  Act  of  1903  was  considered  objectionable  in 
that  it  taxed  both  personal  property  and  the  income 
derived  from  it.  The  method  of  meeting  this  objec- 
tion was  somewhat  orioinal  and  is  shown  by  the  fol- 
lowing quotation  from  the  amending  act  passed  in 
1907: 

When  any  person  is  assessed  and  taxed  on  personal 
property  from  which  his  income  is  derived,  the  amount  of 
the  tax  on  such  personal  property,  if  greater  than  the  amount 
of  the  tax  on  his  income,  shall  be  the  only  tax  payable  in 
respect  of  both  income  and  personal  property ;  if  the  tax  on 
income  is  greater  in  amount  than  the  amount  of  the  tax  on 
personal  property,  the  amount  of  tax  on  income  shall  be  the 
only  tax  payable  in  respect  of  both  income  and  personal 
property,  and  in  the  event  of  the  amount  of  the  tax  on  per- 
sonal property  and  the  amount  of  the  tax  on  income  being 
equal,  the  tax  on  income  shall  be  the  only  tax  payable  in 
respect  of  both  income  and  personal  property.12 

This  provision  is  explained  by  the  Provincial  Sur- 
veyor of  Taxes  as  follows : 

The  assessor  has  the  right  to  collect  the  tax  which  yields 
the  greater  revenue;  that  is,  he  chooses  between  what  the 


12.    3  &  4  Edw.  VII,  c.  53,  5. 


48 


INCOME  TAXATION 


tax  is  on  personal  property  (which  is  revenue  producing) 
and  the  tax  on  the  income  produced  therefrom.  Where  in- 
come is  derived  from  other  sources  than  personal  property, 
such  income  is  taxable,  in  addition  to  the  tax  on  personal 
property  from  which  no  income  is  derived. 

The  place  which  the  income  tax  fills  in  the  gen- 
eral scheme  of  taxation  may  be  seen  from  the  follow- 
ing- table  in  which,  for  the  sake  of  brevity,  the  cor- 
porate and  individual  incomes  have  been  combined 
and  the  percentage  in  each  case  of  the  total  tax  has 
been  computed : 

Year    Am't  of  Income    Am't  of  Tax    Total  Taxes     Percentage  of 
Assessed  on  Income  Income  Tax  to 


1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 

The 


$  20,643 


$  1,821,165 
2,508,462 
2,393,377 
2,561,123 
5,904,507 
5,557,183 
7,136,817 
8,461,566 
10,257,712 

white  population  of  British  Columbia  is  esti- 


40,393 

37,879 

40,130 

93,241 

74,728 

98,733 

124,298 

163,412 


total  Tax. 

$291,410.77 

7.08 

324,400.36 

12.45 

335,167.75 

11.27 

343,646.85 

11.67 

757,496.39 

12.30 

748,337.68 

9.98 

714,486.13 

13.81 

659,514.95 

18.84 

856,373.33 

19.08 

mated  at  260,000  and  in  view  of  the  fact  that  it  is 
scattered  over  a  great  area,  the  comparative  success 
of  the  income  tax  is  remarkable.  Mr.  John  B.  Mc- 
Killigan,  the  Provincial  Surveyor  of  Taxes,  testifies 
that  the  tax  is  productive  of  good  results  and  gives 
general  satisfaction.13 


CANADA. 


The  government  of  Canada,  as  such,  does  not  have 
an  income  tax  law,  but  the  province  of  Ontario  has  a 


13.  McKilligan,  Taxation  in  British  Columbia,  in  State  and 
Local  Taxation,  2nd  International  Conference,  Addresses  and  Pro- 
ceedings (1909),  p.  327. 


CANADA  49 

partial  income  tax  law  under  which  income  is  taxed 
at  the  same  rate  and  to  some  extent  in  the  same  man- 
ner as  other  property.  There  is  no  graduation  in  the 
tax,  except  as  the  exemptions  at  the  foot  of  the  scale 
tend  to  give  it  a  progressive  character.  The  exemp- 
tions consist  of  one  thousand  dollars  deduction  from 
personal  earnings  or  from  any  pension,  credit  or  re- 
tiring allowance  in  respect  of  personal  services,  while 
the  person  in  question  is  a  resident  and  householder 
in  a  city  or  town.  If  the  person  is  a  resident  and 
householder  in  a  municipality  other  than  that  which 
levies  the  tax,  the  exemption  is  $700,  and  if  the  per- 
son is  a  resident,  but  not  a  householder  in  the  city  or 
town,  the  exemption  is  $600. 

The  income  of  householders  derived  from  invest- 
ments is  exempt  if  it  does  not  exceed  $300.  Income 
from  real  estate  (except  interest  on  mortgages)  is 
wholly  exempt  as  it  is  supposed  to  be  reached  by  the 
real  estate  and  business  tax.14 

The  amount  of  taxable  income  and  the  rates  for 
1907  were : 

Rural   $2,832,831     Average   rate 1.15% 

Urban   4,644,311  "  "    2.36% 

City   14,039,181  "  "    2.26% 


Total     $21,516,323 

Applying  the  above  rates  to  the  taxable  income  it 
would  appear  that  the  amount  of  tax  collected  on  in- 
comes was  $459,168.78  or  2.35  per  cent  of  the  total 
amount  raised  by  taxation. 


14.     See  Consular  Report  in  Congressional  Record,  Vol.  45  (Jan. 
27,  1910),  p.  1115. 


5<D  INCOME  TAXATION 

In  the  province  of  Alberta  there  are  a  few  towns 
and  cities  which  levy  income  taxes.  The  city  of 
Edmonton  levies  a  tax  on  all  personal  income  in  ex- 
cess of  one  thousand  dollars.  The  rate  is  that  "of  the 
general  property  tax  for  each  year  and  the  amount 
collected  is  very  small,  being  less  than  one  per  cent 
of  the  total  taxes. 


CAPE  OF  GOOD  HOPE. 

The  income  tax  in  this  Colony  dates  from  the 
"Additional  Taxation  Act"  of  1904 — a  law  which 
seems  to  have  been  drawn  with  unusual  care  in  so  far 
as  administration  is  concerned,  but  which  provides 
an  extremely  high  exemption  and  a  clumsy  method 
of  gradation.  The  provision  of  the  law  as  to  rates  is 
as  follows : 

§  50.  From  and  after  the  ist  of  July,  1904,  subject  to 
the  provisions  of  this  Act  and  the  regulations  hereunder, 
there  shall  be  charged,  levied,  collected  and  paid  to  the 
revenue  of  the  Colony  for  the  service  of  the  financial  year 
ending  the  3Oth  of  June,  1905,  an  income  tax  in  respect  of 
the  annual  amount  of  all  taxable  incomes  arising  or  accru- 
ing during  the  twelve  months  ended  the  3Oth  June,  1904, 
exceeding  one  thousand  pounds  per  annum  at  the  rate  of 
sixpence  in  the  pound  upon  all  incomes  exceeding  one  thou- 
sand pounds  and  not  exceeding  two  thousand  pounds,  and 
in  addition  thereto  ninepence  in  the  pound  on  so  much  as 
exceeds  two  thousand  pounds  up  to  five  thousand  pounds, 
and  in  addition  thereto  one  shilling  in  the  pound  on  so  much 
of  all  incomes  as  exceed  five  thousand  pounds. 


CAPE  OF  GOOD  HOPE  51 

This  section  has  been  construed  to  levy  the  fol- 
lowing rates : 

Incomes  not  exceeding  £l,000  exempt!    ,.  .    •     ,•>  A 

Incomes  exceeding  £1000  ($4,866.50)  [  6  d  m  the  pound  on  efrens0> 
but  not  exceeding  £2,000  ($9,733)  '  J    c 

]    The  1st  £1,000  is  not  taxed. 
The  2nd  £1,000  is  taxed  6d. 

Incomes  exceeding  £2,000,  but   not     I   in  the  nound   or  2  50% 

exceeding  £5,000  ($24,332.50)  and   th^    remainder'  '9  <L   in 

j    the  pound,  or 3.75% 

1st  £1,000  exempt.  2nd 
£1,000  tax  of  6  d.  or.  .2.50% 
Next  £3,000  tax  of  9  d.  or 


Incomes  exceeding  £5,000 


.3.75% 

Remainder  above  £5,000  is 
taxed  1  s.  in  the  pound 
or  5% 

The  exemption  of  £1,000  does  not  apply  to  limited 
liability  companies  or  to  shareholders  in  such  com- 
panies in  respect  of  their  income. 

Every  company  is  required  to  have  a  "public 
officer"  who  is  appointed  by  the  board  of  directors 
and  whose  duty  it  is  to  pay  the  income  tax  and  to 
represent  the  company  in  all  matters  relating  to  in- 
come tax. 

The  provisions  of  the  law  as  to  "representative 
taxpayers"  are  so  well  designed  to  accomplish  the  end 
sought  that  it  has  seemed  worth  while  to  quote  them 
in  full: 

§  53.  Subject  to  the  provisions  of  this  Act,  income  tax 
shall  be  payable : 

(1)  In  respect  of  the  income  of  a  company,  by  the 
public  officer  thereof. 

(2)  In  respect  of  the  income  of  every  person  per- 
manently or  temporarily  absent  from  or  resident  out  of  the 
Colony,  by  the  attorney  or  agent  of  such  person,  and  for  the 
purpose  of  this  Act  every  person  in  the  Colony  having  the 
receipt,  management  or  control  of  income  on  behalf  of  any 
such  person  shall  be  deemed  to  be  the  agent  of  such  person. 

The  commissioner  may,  if  he  thinks  necessary,  de- 
clare any  person  to  be  the  agent  of  any  other  person,  and  the 


52  INCOME  TAXATION 

person  so  declared  an  agent  shall  be  the  agent  for  the  pur- 
poses of  this  Act. 

(3)  In  respect  of  income  the  subject  of  any  trust  or  of 
infants,  lunatics  and  persons  under  any  legal  disability  by 
the  trustee,  guardian,  curator  or  other  person  entitled  for 
the  time  being  to  the  receipt,  management,  disposal  or  con- 
trol of  such  income  or  remitting  or  paying  the  same. 

(4)  In  respect  of  income  paid  under  the  decree  or  order 
of  any  court  or  judge  to  any  receiver  or  other  person,  by 
such  receiver  or  person,  and  independently  of  the  title  to 
such  income  or  any  contingency  or  uncertainty  in  respect  of 
such  title. 

(5)  In  respect  of  every  other  income,  and  in  all  other 
cases,  by  the  person  to  whom  the  income  arises  or  accrues 
or  who  is  legally  or  equitably  entitled  to  the  receipt  thereof. 

And  the  person  by  whom  income  tax  is  payable  under 
subsections  one  to  four  of  this  section  inclusive  shall  be 
deemed  to  be  "representative  taxpayers"  within  the  mean- 
ing of  this  Act.  Nothing  shall  be  taken  to  relieve  the  per- 
son receiving  the  income  from  the  representative  taxpayer 
from  any  tax  due  or  payable  in  respect  thereof. 

§  54.  Every  representative  taxpayer,  as  regards  the  in- 
come to  which  he  is  entitled  in  his  representative  capacity, 
or  of  which  in  such  capacity  he  has  the  management,  receipt, 
disposal,  remittance,  payment  or  control,  shall  be  chargeable 
with  the  same  income  tax,  and  be  subject  in  all  respects  to 
the  same  liabilities  as  if  the  same  were  income  arising  or 
accruing  to  him  beneficially,  except  that  no  such  taxpayer 
(not  being  a  public  officer  of  a  company)  shall  be  personally 
liable  for  the  payment  of  income  tax  beyond  the  amount  or 
value  of  the  income  of  which  he  has,  in  such  capacity  as 
aforesaid,  the  management,  receipt,  disposal,  or  control : 
Provided  that  nothing  herein  contained  shall,  in  cases  where 
the  representative  taxpayer  acts  as  agent  or  trustee,  for 
several  persons,  prevent  such  representative  taxpayer  from 
claiming  that  each  agency  or  trust  shall  be  treated  separate- 
ly for  the  purpose  of  claiming  the  exemption,  or  deduction 
provided  for  in  section  fifty-one. 

§  55.  Every  representative  taxpayer  who,  as  such,  pays 
any  tax,  shall  be  entitled  to  recover  from  the  person  on 
whose  behalf  such  tax  shall  be  paid,  or  to  retain  out  of  any 
moneys  that  may  come  to  him  in  his  representative  capacity, 
so  much  as  shall  be  required  to  indemnify  him  in  respect  of 
such  payments. 


DENMARK 


53 


The  collections  from  the  tax  for  the  first  year  were 
estimated  at  £280,000  to  £290,000  ($1,411,140)  and 
the  number  of  taxpayers  at  8,000  or  three-tenths  of 
one  per  cent  of  the  total  population  ( $2,433,000 ).15  The 
amount  collected  in  1904-5  was  £292,254;  in  1905-6, 
£252,940  and  in  1906-7,  £263,918  ($1,184,225).  The 
total  revenue  for  1906-7  was  £7,701,192,  of  which  sum 
the  income  tax  contributed  3.42  per  cent.16 


DENMARK. 

The  law  now  in  force  which  was  passed  May  15, 
1903,  and  went  into  effect  April  1,  1904,17  combines 
an  income  and  property  tax.  The  tax  upon  property 
is  six-tenths  of  one  per  cent,  while  the  rates  upon  in- 
come are  shown  in  the  following  table: 


Income 

Under  2,000  Kroner, 
2,000  Kr.  to      3,000  Kr. 


3,000 

4,000 

6,000 

8,000 

10,000 

15,000 

20,000 

30,000 

40,000 

50,000 

100,000 


4,000 
6,000 
8,000 
10,000 
15,000 
20,000 
30,000 
40,000 
50,000 
100,000 
or  over 


Rate 

($     536) 1.3% 

($      804) 1.4% 

($  1,072) 1.5% 

($  1,608) 16% 

($  2,144) 1.7% 

($  2,680) 1.8% 

($  4,020) 1.9% 

($  5,360) 2.  % 

($  8,040) 2.1% 

($10,720) 2.2% 

($13,400) 2.3% 

($26,800) 2.4% 

2.5% 


The  law  as  to  exemptions  is  peculiar  in  that  it 
recognizes  the  fact  that  the  minimum  of  existence 
should  be  placed  higher  for  persons  residing  in  large 


15 


Graduated  Income  Tax,  etc.,  op  cit.  (See  Ch.  II,  Note  10 
ante)  p.  29. 

le.    Annual  Cape  of  Good  Hope  Statistical  Register,  1908. 

17.  Lov  om  Indkomst-  og  Formueskat  til  Statcn.  V.  Pios  Bog- 
handel.  Copenhagen,  1910. 


54  INCOME  TAXATION 

cities.  The  principle  is  carried  still  farther  by  grad- 
ing the  exemptions  made  for  children  or  dependents. 
Section  8  of  the  law  reads  (when  translated),  as  follows : 

From  every  income  there  shall  be  exempted  as  free  from 
taxation : 

In  Copenhagen  and  Fredericksberg,  800  Kr.  ($214)  ;  in 
market  towns  (including  Marstal  and  Fredericks  vaerk),  700 
Kr.  ($187.60)  ;  and  in  rural  districts,  600  Kr.  ($160.80)  ; 
for  every  child  which  was  under  15  years  at  the  beginning  of 
the  calendar  year  for  which  the  tax  was  levied  and  is  not 
liable  to  taxation  under  the  provisions  of  Section  7,  an  addi- 
tional exemption  of  100  Kr.  ($26.80)  in  Copenhagen  and 
Fredericksberg;  85  Kr.  ($22.78)  in  market  towns  *  *  * 
and  70  Kr.  ($18.76)  in  rural  districts. 

The  Section  7  above  mentioned  provides  that  the 
head  of  the  family  shall  be  taxed  for  the  combined  in- 
come of  the  members  of  the  household.  The  wife,  if 
living  with  her  husband,  is  reckoned  as  a  part  of  the 
household,  even  though  she  have  an  independent  in- 
come, as  are  also  dependent  children  who  are  not 
themselves  householders.  If  the  wife  have  separate 
property  or  income  she  may  be  required  to  pay  her 
proportion.  If  the  wife  is  living  permanently  apart 
from  her  husband  she  may  be  taxed  independently  for 
all  of  her  income  except  that  portion  which  she  re- 
ceives from  her  husband  in  the  form  of  alimony  or 
otherwise. 

The  exemptions  above  mentioned  do  not  apply  to 
non-resident  persons  or  corporations,  and  their  tax  is 
fixed  at  two  per  cent.  In  computing  the  tax  the 
whole  amount  of  income,  less  the  deductions,  is 
divided  by  fifty  and  the  remainder  ignored.  Another 
curious  provision,  the  reason  for  which  is  not  ap- 
parent, is  to  the  effect  that  the  rate  shall  be  deter- 


DENMARK  55 

mined  upon  the  basis  of  the  total  income  before  any 
deductions  are  made. 

The  provisions  for  the  administration  of  the  "in- 
come and  property  tax"  are  very  complete  and 
specific.  They  comprise  20  pages  of  the  pamphlet 
edition  of  the  Lov  om  Indkomst-  og  Formueskat  til 
S  tat  en  (Law  concerning  State  Income  and  Property 
Tax)  and  bear  some  resemblance  to  the  system  in 
Germany.  The  country  is  apportioned  into  taxing 
districts  and  for  each  district  a  Skatteraad  (assess- 
ment or  taxation  board)  is  appointed  by  the  Minister 
of  Finance,  who  also  names  the  chairman.  These 
officials  hold  office  for  six  years,  one-half  retiring 
every  three  years.  They  are  paid  small  salaries  in 
addition  to  their  traveling  expenses.  Service  upon 
these  boards  is  obligatory  except  in  the  case  of  clergy- 
men, persons  over  sixty  years  of  age  and  those  who 
have  already  served.  There  is  also  a  General  Super- 
ior Taxation  Board  (Overskatteraad}  which  consists 
of  the  Amtmand  (High  Sheriff  or  Magistrate)  of  each 
county  as  chairman,  two  members  appointed  by  the 
Minister  of  Finance  and  two  members  nominated  by 
the  County  Board  from  among  its  members. 

On  or  before  February  first  of  each  year,  public 
notice  is  given  that  all  persons  must  give  statements 
of  their  income  and  property  and  blank  forms  for 
statements  are  distributed.  The  process  of  assess- 
ment must  be  completed  by  March  31,  and  complaints 
may  be  filed  during  the  first  half  of  April.  These 
complaints  are  heard  and  passed  upon  in  the  latter 
half  of  the  month.  Any  person  who  neglects  to  make 
the  required  statement  forfeits  his  claim  to  protest 
against  the  assessment  unless  he  can  prove  that  he 
has  been  assessed  for  an  amount  exceeding  his  true 


56  INCOME  TAXATION 

income  by  more  than  25  per  cent.  For  example,  if  the 
excess  were  20  per  cent  this  would  not  constitute  any 
ground  for  relief.  If,  however,  the  taxpayer  can  show 
that  the  assessment  exceeds  his  true  income  by  more 
than  25  per  cent  he  will  be  allowed  to  pay  upon  the 
lower  amount  plus  a  15  per  cent  penalty  for  not  hav- 
ing made  a  declaration.  Any  person  guiltv  of  false 
statements  or  returns  as  to  his  income  is  liable  to  a 
fine  not  exceeding  ten  times  the  amount  of  the  tax 
thereby  evaded.  The  taxation  boards  and  officials 
are  bound  to  inviolable  secrecy  as  to  the  information 
they  obtain  regarding  incomes. 

The  collectors  of  the  tax  are  distinct  officials,  un- 
connected with  the  assessment  boards  and  they  re- 
ceive \y2  per  cent  of  the  amount  which  they  collect. 

The  results  of  the  collections  for  the  year  ending 
March  31,  1904,  which  was  the  first  year  the  tax  was 
in  operation,  were : 

Collected  from  Income  Tax    5,915,266.57  Kr.   ($1,585,291) 
"       Property  Tax  2,582,956.64    "     (      692,232) 

Total     8,498,223.21  Kr.   ($2,277,523) 

It  will  thus  be  seen  that  the  income  tax  constituted 
nearly  70  per  cent  of  the  total  amount.  The  number 
of  income  taxpayers  was  306,937  and  the  total  amount 
of  income  assessed  was  643,571,209  Kr.  ($172,482,- 
074).  The  collections  from  income  tax  in  1907  had 
risen  to  about  $2,150,000  and  the  number  of  income 
taxpayers  in  1908-9  to  337,011,  or  15  per  cent  of  the 
total  population  of  2,588,919.18 

Copenhagen,  the  capital  city,  has  a  communal  or 
city  income  tax  which  is  based  upon  a  law  of  Oct.  22, 
1903,  as  amended  June  2,  1909,  and  ratified  by  the 


18.    Congressional  Record,  Vol.  45,  p.  1112. 


COPENHAGEN 


57 


King,  April  18,  1910. 19  The  main  purpose  of  the  tax 
is  to  meet  any  deficiencies  in  the  budget,  and  it  is 
separate  from,  and  additional  to  the  government  in- 
come tax.  The  first  section  of  the  law  is  as  follows : 

The  amount  necessary  to  meet  the  communal  expenses 
of  the  city  of  Copenhagen,  and  not  provided  for  by  other 
communal  taxes  or  income  from  other  sources,  shall  be 
raised  by  an  income  tax  which  shall  be  levied  in  accordance 
with  the  following  law. 

The  computation  of  the  rates  is  somewhat 
peculiar,  the  basis  being  arranged  by  the  following 
scale  : 

Taxable  income  under  800  Kr.  pays  one  per  cent  of 
amount  up  to  600  Kr.,  and  1%  per  cent  of  the  amount 
above  that  sum.  For  example,  if  the  amount  of  in- 
come is  700  Kr.  the  tax  would  be  1%  of  600=6,  plus 
of  100=1.25,  total  7l/4  Kr. 


800  to   1,000  Kr.  1.1%  of    800  Kr.  and  2.6%  of  tf 

1,000 

2,000 

1.4% 

1,000 

3.4% 

2,000 

6,000 

2.4% 

2,000 

3.6% 

6,000 

10,000 

3.2% 

6,000 

3.7% 

10,000 

20,000 

3.4% 

10,000 

4.  % 

20.000 

40,000 

3.7% 

20,000 

4.3% 

40,000 

100,000 

4.  % 

40,000 

5.  % 

100,000 

200,000 

'  4.6% 

100,000 

5.4% 

200,000  Kr.        5.  %  ' 

200,000 

6.  % 

The  percentages  above  given  are  not  the  rates  of 
taxation,  but  simply  form  a  proportional  basis 
( Grundbeloeb ) ,  which  may  be  raised  or  lowered  by  a 
uniform  percentage  according  to  the  amount  neces- 
sary to  be  collected. 

The  provisions  for  administering  the  tax  are  sub- 
stantially similar  to  those  in  the  income  tax  law  of  the 
general  government. 


19.  Lov  om  Indkomstskat  til  Kjoebenhavns  Kommune  samt 
Anordning  af  22  Oktober,  1903,  og  Anordning  af  2  Juni  1909.  V. 
Pios  Boghandel,  Copenhagen,  1910. 


CHAPTER  IV. 


ENGLAND. 

The  income  tax  now  in  force  in  Great  Britain  and 
Ireland  is  often  spoken  of  as  the  most  successful 
measure  of  the  kind  which  has  thus  far  been  devised. 
Not  only  is  the  absolute  amount  raised  by  it  each 
year  larger  than  has  ever  been  obtained  by  an  income 
tax  in  any  other  country,  but  its  collection  is  accom- 
plished with  less  harshness  and  friction  than  are 
usually  supposed  to  be  necessary  with  this  form  of 
tax.  The  chief  merit  of  the  English  income  tax  lies 
in  the  remarkably  large  extent  to  which  it  is  collected 
at  the  source — thus  obviating  the  necessity  for  in- 
quisitorial proceedings  upon  the  one  hand,  while  re- 
moving the  opportunity  for  fraud  and  evasion  upon 
the  other.  It  is  stated  by  one  who  has  given  the  sub- 
ject very  careful  study  that  probably  more  than  four- 
fifths  of  the  tax  collected  is  assessed  in  such  a  way,  or 
under  such  conditions,  that  evasion  is,  broadly  speak- 
ing, out  of  the  question.1  In  the  most  important 


x.  See  monograph  on  the  English  Income  Tax  by  Joseph  A.  Hill, 
Ph.D.,  in  Economic  Studies,  Vol.  4,  Publications  of  American  Eco- 
nomic Association,  pp.  272  and  387.  This  is  the  clearest  exposition 
of  the  administrative  features  of  the  English  income  tax  which  has 
come  to  our  notice  and  it  will  be  referred  to  frequently  in  the  fol- 
lowing pages. 


ENGLAND  59 

schedule,  the  tax  is  levied  upon  over  88  per  cent  of  the 
income  subject  to  it.  A  second  advantage  of  the  Eng- 
lish system  is  that  by  its  division  of  income  into  sepa- 
rate schedules,  assessed  to  a  considerable  extent  by 
different  officials,  complete  knowledge  of  one's  finan- 
cial condition  is  not  obtained  by  any  one  assessor.  A 
third  great  merit  of  the  tax  is  that  the  amount  of  it 
can  be  readily  adjusted  to  the  fiscal  needs  of  the 
country  by  a  very  slight  change  in  the  rate.  It  is  true 
that  the  rate  is  rendered  progressive  by  abatements 
on  smaller  incomes  and  a  super-tax  on  the  larger;  but 
there  is  one  fixed  rate  upon  the  basis  of  which  all 
computations  are  made  and  as  this  rate  is  determined 
for  each  year  by  act  of  Parliament  a  certain  elasticity 
is  given  to  the  tax. 

History.  The  idea  of  levying  taxes  with  reference 
to  the  amount  of  income  received  by  the  taxpayers  is 
by  no  means  new  in  England.  As  early  as  1379  a 
graduated  poll  tax  was  imposed,  based  in  part  upon 
income.  It  should  be  explained  that  this  was  not  a 
poll  tax  in  the  strict  sense  of  a  fixed  sum  demanded  of 
every  person;  but  the  term  was  formerly  used  in 
England  in  connection  with  taxes  levied  upon  all  the 
persons  in  a  class.  The  people  were  divided  into 
classes  according  to  their  rank,  condition  in  life,  prop- 
erty or  income,  and  each  person  was  taxed  according 
to  the  rate  fixed  for  the  class  to  which  he  was  as- 
signed. In  many  respects  the  tax  bore  a  certain  re- 
semblance to  the  later  class-tax  or  Klassensteuer,  of 
Germany.  These  poll  taxes,  usually  graduated  in 
amount  progressively,  were  imposed  at  various  in- 
tervals in  the  fifteenth  and  sixteenth  centuries  and 
were  measures  of  considerable  fiscal  importance. 


6O  INCOME  TAXATION 

The  first  English  income  tax  in  the  modern  sense 
of  the  term  was  introduced  at  the  instance  of  William 
Pitt,  at  that  time  Prime  Minister  and  first  Lord  of 
the  Treasury,  in  January,  1799.  It  bore  some  general 
resemblance  to  the  present  law  in  that  incomes  were 
divided  into  four  main  schedules,  a  certain  sum  was 
exempt,  allowances  were  made  for  children  and  for 
life  insurance  premiums.  But  it  differed  from  the 
later  tax  by  being  graduated,  the  highest  rate  being 
ten  per  cent.  According  to  Pitt's  original  estimate 
the  tax  was  designed  to  produce  ten  million  pounds 
but  the  actual  yield  was  only  about  six  million  pounds, 
and  the  law  was  repealed  in  1802. 

In  1803,  what  is  known  as  Addington's  Property 
and  Income  Tax  was  imposed.  This  tax  bears  a  strik- 
ing resemblance  to  the  one  now  in  force.  It  differed 
from  Pitt's  plan,  which  involved  a  general  return  of 
income  from  all  sources,  in  that  it  provided  for 
particular  returns  from  particular  sources  and  sub- 
stituted a  flat  rate  of  one  shilling  on  the  pound  (which 
is  the  exact  rate  that  has  been  levied  for  the  past  few 
years),  for  the  progressive  rate.  The  schedules  A, 
B,  C,  D  and  E  were  substantially  the  same  as  in  the 
present  law,  and  there  were  the  usual  exemptions  and 
abatements. 

In  1806  a  new  law  known  as  Petty's  Property  and 
Income  Tax  was  passed.  It  differed  from  the  law  of 
1803  in  some  minor  details,  and  was  repealed  in  1815. 
not  because  it  had  proved  itself  inefficient,  but  be- 
cause it  had  been  adopted  only  as  a  war,  or  emergency 
measure,  with  the  general  understanding  on  the  part 


ENGLAND  6 1 

of  the  tax-paying  public  that  it  would  be  repealed  as 
soon  as  the  war  was  ended. 

The  net  yield  of  the  tax  for  the  year  ending  April 
5,  1815,  was  £14,545,279  ($70,690,050)  which,  it  will 
be  noticed,  was  nearly  three  times  the  amount  realized 
from  the  tax  a  quarter  of  a  century  later  and  nearly 
half  the  amount  which  it  now  produces — a  remark- 
able result  in  view  of  the  fact  that  the  population  and 
wealth  of  the  country  have  quadrupled  since  1815. 

For  twenty-seven  years  after  1815,  there  was  no  in- 
come tax  in  England.  In  1842  Sir  Robert  Peel  re- 
vived the  tax,  partly  to  provide  for  a  deficit  in  the 
budget  and  partly  to  enable  him  to  reduce  the  tariff. 
It  is  said  that  the  adoption  of  the  law  was  immediately 
followed  by  the  placing  of  over  700  articles  on  the 
free  list.  This  fact  is  significant  in  connection  with 
the  possible  effect  upon  the  tariff  of  a  Federal  income 
tax  in  the  United  States.  Although  the  tax  of  1842 
was  levied  as  a  temporary  expedient  for  a  period  of 
only  three  years,  it  was  found,  at  the  end  of  that  time, 
that  it  could  not  well  be  dispensed  with  and  in  1845 
it  was  extended  for  another  three  years  and  again  in 
1848.  In  1851  and  1852  it  was  continued  for  only  a 
year,  as  there  was  some  talk  of  abolishing  it.  In 
1853  Gladstone  obtained  the  consent  of  Parliament 
to  a  continuance  of  the  tax  for  seven  years  at  a  rate 
of  seven  pence  for  the  first  two  years,  six  pence  for 
the  second  two  years  and  five  pence  for  the  last  three 
years — the  evident  intention  being  to  gradually  de- 
crease the  amount  of  the  tax  until  it  could  be  finally 
abolished.  But  the  tax  had  come  to  play  such  an  im- 
portant role  in  the  finances  of  the  country  that  noth- 


62  INCOME  TAXATION 

ing  could  be  found  to  replace  it,  and  although  still 
voted  from  year  to  year,  it  has  become  a  permanent 
feature  of  the  British  taxing  system. 

Rates  and  Schedules.  The  annual  rate  has  varied 
from  5  pence  in  the  pound  in  1853,  to  1  shilling  4  pence 
during  the  Crimean  War,  in  1856;  and  from  2  pence  in 
1874,  to  1  shilling  3  pence  in  1902,  during  the  South 
African  war.  For  the  past  few  years,  until  1909,  the 
rate  has  been  fixed  at  1  shilling  in  the  pound  or  5  per 
cent.  The  abatements  and  super-tax  result  practically  in 
changes  of  rate  for  certain  individual  taxpayers,  but  the 
amount  of  revenue  which  the  tax  will  yield  is  usually 
estimated  on  the  basis  of  what  each  penny  of  the  rate  will 
produce.  Thus,  in  1898,  when  the  rate  was  8  pence  the 
total  revenue  collected  for  each  penny  of  the  tax  was 
£2,188,000  ($10,692,000)  and  in  1907,  when  the  rate 
was  1  shilling  the  total  revenue  for  each  penny  was 
£2,667,000  ($12,977,000).  In  terms  of  American  cur- 
rency this  would  be  approximately  $5,350,000  and 
$6,500,000  for  each  one  cent  of  the  tax  in  the  respective 
year.2 

The  different  kinds  of  taxable  income  are  classified 
under  five  heads  or  schedules : 

Schedule  A  includes  income  from  "property  in  all 
lands,  tenements,  hereditaments  and  heritages  in  the 
United  Kingdom" — in  other  words,  income  arising  from 
the  ownership  of  lands  and  houses,  including  the  rental 
value  of  premises  occupied  by  the  owner  as  well  as  the 
rents  received  by  the  landlord  from  the  tenant. 


2.     See  Consular  Report  in  Congressional  Record,  Vol.  44  (July 
3,  1909)  p.  4151. 


ENGLAND  63 

Schedule  B  applies  to  the  direct  income  from  the  use 
or  occupation  of  land,  that  is,  the  income  received  by  the 
farmer,  whether  owner  or  tenant.  Schedules  A  and  B 
do  not  apply  to  land  or  buildings  used  for  industrial  or 
business  purposes.  The  income  from  such  sources  would 
be  included  in  Schedule  D. 

Schedule  C  includes  "all  profits  arising  from  interest, 
annuities,  dividends  and  shares  of  annuities  payable  to 
any  person,  body-politic  or  corporate  company  or  society, 
whether  corporate  or  not  corporate,  out  of  any  public 
revenue," 

Schedule  D  covers : 

a).  The  annual  profits  or  gains  arising  or  accruing  to 
any  person  residing  in  the  United  Kingdom  from  any 
kind  of  property  whatever,  whether  situate  in  the  United 
Kingdom  or  elsewhere;  and  annual  profits  or  gains  aris- 
ing or  accruing  to  any  person  residing  in  the  United 
Kingdom  from  any  profession,  trade,  employment,  or 
vocation,  whether  the  same  shall  be  respectively  carried 
out  in  the  United  Kingdom  or  elsewhere. 

b).  The  annual  profits  or  gains  arising  or  accruing 
to  any  person,  whether  a  subject  of  His  Majesty  or  not, 
whether  a  resident  within  the  United  Kingdom  or  not, 
from  any  profit  whatever  in  the  United  Kingdom,  or  any 
profession,  trade,  employment,  or  vocation  exercised 
within  the  United  Kingdom. 

c).  All  interest  of  money,  annuities,  and  other  an- 
nual profits  and  gains  not  charged  by  virtue  of  any  of 
the  other  schedules. 

This  is  the  most  important  schedule  as  it  applies  to 
more  than  half  of  all  the  income  assessed,  and  owing  to 
the  provision  embodied  in  the  last  sentence  it  should  have 
been  logically  the  last  schedule. 


64  INCOME  TAXATION 

Schedule  E  is  often  placed  before  D  and  applies  to 
the  income  from  public  office  or  employment  of  profit, 
and  upon  every  annuity,  pension  or  stipend  payable  by 
His  Majesty,  except  annuities  charged  to  the  duties  un- 
der schedule  C. 

Exemptions.  The  law  of  1803  exempted  £60  ($292). 
The  law  of  1842  exempted  all  incomes  under  £150.  This 
exemption  was  changed  in  1853  to  £100,  in  1876  to  £150 
and  in  1894  to  £160  ($778),  at  which  point  it  has  since 
remained. 

Abatements.  Taxpayers  wrhose  incomes  are  between 
£160  and  £700  are  entitled  to  certain  abatements,  not  of 
the  tax,  but  of  the  amount  on  which  the  tax  is  levied,  as 
follows : 

An  abatement  of  £160  on  incomes  exceeding  £160,  but  not  over  £400 
"  £150  "  "  "  £400.  "  "  "  £500 
"  £120  "  "  "  £500,  "  "  "  £600 
"  £  70  "  "  "  £600,  "  "  "  £700 

Where  income  arises  under  different  schedules  the 
abatement  is  allowed  preferably  from  the  amounts  re- 
ported in  schedules  D  and  E.  If,  for  instance,  the  claim- 
ant's income  consisted  of  £200  derived  from  his  business 
or  occupation  (schedule  D)  and  £100  representing  the 
annual  value  of  his  dwelling  house  (schedule  A),  the 
abatement  of  £160  would  be  deducted  from  his  business 
income,  and  he  would  thus  be  taxed  for  £40  of  income 
in  schedule  D  and  £100  in  schedule  A.  The  effect  of 
these  abatements  is  curiously  regressive  within  the  first 
class  and  progressive  thereafter.  For  example,  a  tax- 
payer having  an  income  of  £161  would  pay  (assuming 
the  rate  to  be  one  shilling  on  the  pound)  a  five  per  cent 
tax  on  the  one  pound  which  would  be  taxable,  while  the 
person  whose  income  was  £400  would  pay  only  240  shill- 


ENGLAND  65 

ings  or  three  per  cent.  The  rates  for  the  lowest  and 
highest  amounts  in  each  class  would  therefore  be  as  fol- 
lows : 

Lowest  amounts  Highest  amounts 

On  £161  =  5.  %  On  £400  =  3.  % 

"    £401  =  3.1%  "    £500  =  3.5% 

"     £501  —  3.8%  "     £600  =  4.  % 

"    £601  =  4.4%  "    £700  —  4.5% 

In  addition  to  these  abatements  there  are  deductions 
from  gross  income,  such  as  those  for  life  insurance 
premiums,  charities  and  hospitals,  repairs  of  lands  and 
houses  and  wear  and  tear  of  machinery  or  plant.  De- 
ductions of  one-eighth  are  allowed  in  respect  of  lands 
and  one-sixth  in  respect  of  houses  for  repairs. 

A  new  abatement  has  been  added  in  the  budget  of 
1909  by  means  of  which  persons  earning  under  £500  a 
year  are  given  an  allowance  of  ten  pounds  for  every  child 
under  sixteen  years.8 

To  secure  any  of  these  abatements  it  is  necessary 
to  present  a  claim  accompanied  by  a  declaration  of  all 
income  received.  It  appears  that  in  most  cases  the  full 
amount  of  tax  is  paid  and  the  amount  of  abatement  re- 
paid on  proper  proof.  It  is  said  that,  in  order  to  secure 
the  abatements  and  deductions  which  are  allowed,  about 
four-fifths  of  the  income  taxpayers  make  written  de- 
clarations of  their  aggregate  income. 

In  1897,  under  this  cumbersome  method,  over  300,- 
000  claims  were  presented.*  The  amount  of  .tax  re- 
funded in  the  same  year  was  £891,741  ($4,339,212). 


3.  See  Clause  68  of  Part  IV  of  Finance  Bill  of  1909. 

4.  About  sixty  per  cent,    of  those  who  pay   income   taxes  in 
England  receive  allowances  or  rebates.     Bastable,  C.  F.    The  Budget 
of  1907  considered  with  special  reference  to  the  Income  Tax.    Eco- 
nomic Journal,  Vol.  17  (June,  1907),  p.  165. 


66  INCOME  TAXATION 

Of  this  amount  £326,000  was  for  exemptions,  £228,000 
for  abatements,  £118,000  for  charities,5  £47,000  for  life 
insurance  premiums  and  the  residue  for  various  other  rea- 
sons.6 The  variety  and  extent  of  the  abatements  account 
for  the  large  proportion  of  income  taxpayers  who  make 
declarations  of  their  income. 

As  to  the  actual  practical  workings  of  this  system  of 
abatements  the  following  comments  by  Mr.  Hill  will 
prove  instructive : 

These  abatements  of  course  have  the  effect  of  making 
the  tax  progressive  up  to  the  point  where  they  cease  to  ap- 
ply. Progression  may  on  general  grounds  be  justifiable  and 
desirable.  But  a  tax  which,  like  the  English  income  tax,  is 
levied  upon  the  sources  of  income  is  not  well  suited  for  any 
extended  application  of  the  progressive  principle ;  and  what- 
ever may  be  said  in  favor  of  the  abatements  it  can  hardly 
be  denied  that,  so  far  as  the  question  of  administration  is 
concerned,  the  tax  has  been  complicated  and,  we  may  add, 
weakened  by  their  introduction  and  recent  extension.  Prob- 
ably the  great  majority  of  taxpayers  are  now  entitled  to  an 
abatement.  But  in  order  to  secure  it  they  must  make  a 
declaration  of  their  aggregate  net  income  from  all  sources, 
and  in  order  to  guard  against  fraud  the  officers  of  assess- 
ment must  satisfy  themselves  that  the  declarations  are  cor- 
rect. In  this  way  the  necessity  for  ascertaining  individual 
incomes  and  relying  upon  declarations  is  being  extended, 
and  the  advantages  of  an  assessment  at  the  source  of  the 
income  are  in  a  corresponding  degree  sacrificed.  Then  there 
is  the  inconvenience  involved  in  assessing  and  collecting  a  tax 
to  which  the  government  is  not  entitled  and  afterwards  re- 
funding it.  That  the  progression  thus  introduced  by  means 


5.  Allowances  are  made  for  the   income  of  colleges  and  uni- 
versities, hospitals,  literary  and  scientific  institutions,  land  used  for 
charitable  purposes,  friendly  societies,  public  schools,  trade  unions, 
etc.    See  Consular  Report  in  Congressional  Record,  Vol.  45   (Jan. 
27,  1909),  p.  1105. 

6.  Hill,  Joseph   A.    The  English  Income  Tax.    In   Economic 
Studies.     Published  by  the  American  Economic  Association,  Vol.  4, 
p.  349. 


ENGLAND  67 

of  abatements  should  have  been  carried  as  far  as  it  has  been 
under  conditions  as  unfavorable  to  its  extension,  is  indicative 
of  the  strength  of  the  tendency  towards  progressive  taxation, 
under  the  influence  of  modern  democracy.  In  this  instance 
the  development  of  progression  has  doubtless  been  promoted 
by  the  comparatively  high  rate  (8d.  in  the  pound)  at  which 
the  tax  has  been  assessed  in  recent  years.  Unable  to  reduce 
the  tax  on  all  incomes,  because  of  the  need  of  revenue,  the 
government  has  reduced  it  on  the  smaller  incomes  by  ex- 
tending the  abatements.  But  when  such  an  extension  is 
once  made,  it  is  pretty  certain  to  be  retained  and  perpetuated 
even  though  the  rate  of  the  tax  should  be  reduced  to  where 
it  formerly  stood.  Then  the  next  time  the  Chancellor  finds 
it  necessary  to  ask  for  another  penny  of  income  tax,  he  will 
again  be  tempted  to  palliate  the  proposal  by  granting  an- 
other extension  of  the  abatements.  It  becomes  a  question 
how  far  this  process  can  be  carried  without  so  counteracting 
the  advantages  of  the  method  by  which  the  tax  is  assessed 
as  to  render  preferable  the  substitution  of  the  alternative 
method  of  assessing  all  the  tax  directly  upon  the  recipients 
of  the  income. 

Super-tax.  Among  the  recent  changes  made  in  the 
law  is  the  addition  of  a  super-tax  of  six  pence  in  the 
pound  on  all  incomes  exceeding  £5,000,  making  the  total 
rate  on  such  incomes  6  2/3  per  cent.  This  additional  tax 
was  expected  to  yield,  in  1909,  £2,300,000 ($11,186,800), 
and  the  law  now  requires  a  declaration  of  total  income  on 
the  part  of  all  persons  liable  to  this  super-tax.7 

Differentiation.  Another  of  the  recent  reforms  is  the 
differentiation  between  earned  and  unearned  incomes.  By 
earned  incomes  are  meant  those  which  are  the  result  of 
personal  efforts  and  labor,  and  by  unearned  incomes  those 
which  are  the  products  of  investments.  The  differentia- 


r.    For  copy  of  the  paragraph  relating  to  the   Super-tax  see 
Chapter  1  of  this  book  p.  16. 


68  INCOME  TAXATION 

tion  is  effected  by  a  reduction  of  25  per  cent  in  the  rate 
on  earned  incomes  under  £2,000  and,  in  the  budgets  ad- 
mitted to  Parliament  for  1909,  the  tax  on  unearned  in- 
comes was  increased  by  2  d.  making  it  1  s.  2  d. 

'Administration.  It  must  be  admitted  that  the  methods 
by  which  the  English  income  tax  is  assessed  and  collected 
are  quite  complicated — so  much  so,  in  fact,  that  we  must 
forego  any  attempt  to  describe  them  in  detail.  A  fairly 
terse  and  clear  account  of  those  methods  is  given  by 
Joseph  A.  Hill  in  his  excellent  article  upon  the  English 
Income  Tax,  to  which  we  have  already  referred.  His 
review  of  the  manner  in  which  the  tax  is  administered 
comprises  about  150  pages.  A  few  of  the  facts  which 
may  be  of  interest  are  noted  here. 

The  first  step  in  the  assessment  is  taken  by  the 
assessor  who  leaves  at  each  house  in  the  parish  to  which 
he  is  assigned  a  set  of  blank  forms  for  making  returns. 
He  also  posts  a  notice  or  warning  to  all  taxpayers  to 
make  their  returns  within  21  days,  and  there  is  a  penalty 
for  failure  to  comply.  When  the  assessor  has  received 
the  returns  he  examines  them  and  makes  up  an  assess- 
ment which  is  submitted  to  another  official  known  as  the 
surveyor  who  can  "rectify"  the  assessment  if  he  chooses. 
He  acts  under  the  immediate  direction  and  supervision 
of  still  another  official  known  as  the  inspector.  The  in- 
spectors are  under  the  authority  and  control  of  the  Board 
of  Inland  Revenue  to  which  specially  difficult  matters  are 
referred.  This  Board  practically  represents  the  Govern- 
ment in  the  proceedings.  The  interests  of  the  taxpayers 
are  represented  by  the  General  Commissioners  and  by 


ENGLAND  69 

additional  and  special  commissioners  acting  under  them. 
The  general  commissioners  are  required  to  be  property 
owners  and  taxpayers  and  they  are  appointed  by  the 
Land  Tax  Commissioners  who  are  a  self-perpetuating 
body.  There  are  also  Commissioners  for  Special  Pur- 
poses, or  Special  Commissioners.  The  members  of  the 
Board  of  Inland  Revenue  are  ex-officio  Special  Commis- 
sioners and  a  number  of  others  are  appointed  by  the 
Treasury.  Every  taxpayer  may  elect  whether  he  will  be 
assessed  by  the  General  Commissioners  for  his  district 
or  by  the  Special  Commissioners. 

It  will  thus  be  seen  that  the  general  commissioners, 
who  act  as  a  final  revisory  and  appeal  board,  are  neither 
elected  by  the  people  nor  appointed  by  the  Government 
and  are  therefore  in  a  particularly  favorable  position 
for  exercising  their  unbiased  judgment.  The  above  are 
by  no  means  all  the  officials  concerned  with  the  assess- 
ment and  collection  of  the  tax,  but  what  has  been  said 
will  suffice  to  show  what  great  care  has  been  taken  to 
have  the  administration  of  the  tax  carried  out  in  a  thor- 
ough and  effective  manner. 

Under  the  law  as  it  stood  a  few  years  ago  declara- 
tions were  not  required  as  to  the  greater  part  of  the  tax. 
For  example,  a  government  official  would  have  the 
amount  of  his  income  tax  deducted  from  his  salary  and 
would  therefore  have  no  occasion  to  make  a  declaration. 
A  considerable  portion  of  the  tax  is  assessed  from  "ex- 
ternal marks"  or,  as  we  would  say  in  America,  from 
"actual  view."  The  extent  to  which  these  different 
methods  were  employed  in  the  year  1902-3  is  shown  by 
the  following  table: 


7O  INCOME  TAXATION 

I.     (Declaration  of  the  taxpayer  unnecessary) 

Schedule  A.     Ownership  of  lands,  houses,   etc.   view        241,900,000 

B.  Occupation  of  lands,  view 17,500,000 

C.  Government     Securities,     stoppage    at 

source  and  deduction 46,100,000 

D.  Foreign  business   securities,   where  in- 

come was  received  through  agents  or 

public  companies,  deduction 30,500,000 

E.  Profits  of  Companies  and  local  author- 

ities,   deduction 245,600,000 

F.  Salaries    of    government     and     public 

Company  officials,  stoppage  at  source, 
deduction  and  declaration  of  employ- 
ing Company 82,400,000 


£664,000,000 

II.     (Declaration  of  the  taxpayer  necessary) 

Schedule  D.     Profits  and  salaries,  persons  and  firms  211,200,000 

Schedule  D.    Foreign  Securities  taxed  by  declaration  4,400,000 

£215,600,000 


Total £879,600,000 

Financial  Results.  The  exact  relation  of  the  "prop- 
erty and  income  tax"  to  other  revenues  of  the  United 
Kingdom  appears  in  the  following  summary  of  sources  of 
revenue  for  the  fiscal  year  ending  March  3,  1909 : 

Customs  £  29,200,000 

Excise  33,650,000 

Estate,  etc.,  duties 18,370,000 

Stamps   7,770,000 

Land  Tax 730,000 

House  duty 1,900,000 

Property  and  income  tax 33,930,000 

Post    office 17,770,000 

Telegraph  and  telephone 4,530,000 

Crown   lands 530,000 

Suez  Canal,  etc 1,171,466 

Miscellaneous  2,026,829 


Total £151,578,295 

From  this  total,  in  order  to  segregate  the  revenue  de- 
rived from  taxation,  it  is  necessary  to  deduct  the  receipts 
from  the  post  office,  telegraph  and  telephone,  crown 
lands,  Suez  Canal  shares  and  miscellaneous  sources 
amounting  to  £26,028,295.  Making  this  deduction,  it  ap- 


ENGLAND  71 

pears  that  the  amount  raised  by  taxation  for  the  fiscal 
year  was  £125,550,000  ($610,936,000)  and  that  the  in- 
come tax  of  £33,930,000  ($165,103,380)  was  the  largest 
item,  being  27  per  cent  of  the  total  tax. 

The  following  table  will  show  the  amounts  raised  by 
the  tax  for  ten  years.  The  bulk  of  the  increase  in  later 
years  was  due  to  increased  rates,  though  not  exclusively 
so,  as  the  gross  amounts  and  the  net  incomes  both  in- 
creased in  the  period  mentioned.  Since  every  year  re- 
veals incomes  previously  covered  up,  the  consequent  addi- 
tion either  to  the  gross  income  or  to  the  net  income  is 
more  apparent  than  real  and  cannot  be  taken  as  entirely 
a  fresh  addition  to  the  national  wealth.  The  full  returns 
of  net  receipts  from  the  tax  and  rates  charged  in  the 
period  from  1899  to  19098  (to  which  we  have  added  the 
percentages)  areas  follows: 


Rate  in 

Year 

Amount 

the  pound 

Percentage 

sterling 

s.       d. 

1899-1900 

£18,867,336 

0        8 

3.3 

1900-1901 

27,561,160 

1        0 

5. 

1901-1902 

35,378,700 

1         2 

5.83 

1902-1903 

38,659,846 

1         3 

6.25 

1903-1904 

30,500,450 

0       11 

4.58 

1904-1905 

31,263,654 

1         0 

5. 

1905-1906 

31,294,752 

1         0 

5. 

1906-1907 

31,891,949 

1         0 

5. 

1907-1908 

31,860,380 

1         0 

5. 

1908-1909 

33,930,000 

1         0 

5. 

The  relative  importance  of  the  income  reached  by  the 
various  schedules  may  be  seen  by  the  following  statement 
of  the  amount  of  income  taxed  in  the  year  ending  March 
31,  1907,  after  the  abatements  and  deductions  had  been 
made: 


8.    The  fiscal  year  in  England  ends  March  31. 


72  INCOME  TAXATION 

Class  1.    Profits  from  ownership  of  lands,  houses,  etc. 

(Schedule   A.) £158,452,590 

Class  2.     Profits  from  occupation  of  lands,  etc.     (Sched- 
ule B.)  i    4,111;585 

Class  3.     Profits     from     British,    Colonial    and    foreign 

Government  securities.     (Schedule  C.) £  41,710,964 

Class  4.     Profits    from    business,    professions,    employ- 
ments,  etc.     (Schedule   D.) £381,036,647 

Class  5.     Salaries  of  Government,  corporation  and  pub- 
lic company  officials.     (Schedule  E.) £  54,736,452 

Total £640,048,238 

The  number  of  income  taxpayers  has  been  variously 
estimated  at  from  1,100,000  to  1,375,000,  but  as  the 
greater  portion  of  the  tax  is  collected  at  the  source,  and 
as  a  single  taxpayer  might  have  income  arising  from 
many  different  sources  and  in  different  taxing  districts, 
the  number  of  assessments  would  be  no  indication  of  the 
number  of  taxpayers.  In  1907  the  number  of  assessments 
under  Schedule  D  was  578,600,  of  which  476,404  were 
upon  individuals  and  the  remainder  on  business  firms  and 
public  and  private  corporations.  To  these  figures  might 
be  added  employees  under  schedules  D  and  E  to  the  num- 
ber of  519,189,  making  a  total  of  1,097,789.9 

While  it  can  hardly  be  said  of  any  tax  that  it  is  popu- 
lar, the  fact  that  the  British  income  tax  has  been  in  con- 
tinuous operation  for  a  period  of  nearly  seventy  years, 
would  seem  to  indicate  that  the  English  people  have  be- 
come fairly  reconciled  to  it.  There  will  always  be  people 
who  will  look  upon  the  tax  as  unjust  and  inquisitorial,10 


9.  Pepper,   Charles  M.     Report,   as   Special  Agent  on  British 
Income  Tax.     Monthly  Consular  and  Trade  Reports  (U.  S.)  June, 
1909,  No.  345,  p.  209.    On  page  215  of  this  report  there  would  seem 
to  be  an  error  by  which  101,344  employees  of  business  firms   are 
omitted  from  the  computations  of  assessments  on  gross  income. 

10.  For  a  statement  of  the  argument  against  the  British  Income 
Tax  see  "Tyranny  of  the  Income  Tax"  in  Blackwood's  Magazine, 
178,  pp.  279-84,  August,  1905,  where  it  is  characterized  as  "the  most 


ENGLAND  73 

but  among  those  who  control  the  financial  policy  of  the 
British  Empire  there  seems  to  be  no  thought  of  abolish- 
ing the  tax. 

The  comparative  success  of  the  English  income  tax 
cannot  be  used  as  an  argument  in  favor  of  such  a  tax  in 
the  United  States,  without  taking  into  account  the  es- 
sential difference  in  the  conditions  which  prevail  in  the 
two  countries.  As  has  been  well  said : 

England  is,  par  excellence,  the  country  of  fixed  in- 
comes— that  is,  of  incomes  derived  from  safe  investments. 
The  number  of  persons  living  on  such  incomes  drawn  from 
the  public  funds,  home  or  foreign,  from  rent  charges,  from 
mortgages,  from  farm  rents  and  railroad  shares,  and  vary- 
ing little,  if  any,  from  year  to  year,  is  large  in  proportion  to 


dishonorable  and  humiliating  tax  that  has  ever  been  put  upon  a 
willing  and  generous  nation." 

As  a.  typical  instance  of  the  feeling  which  such  a  tax  engenders 
when  it  is  introduced  for  the  first  time,  the  following  correspondence, 
culled  from  the  memoirs  of  John  Horne  Tooke,  and  quoted  by 
David  A.  Wells  in  his  Theory  and  Practice  of  Taxation,  p.  527,  is 
given : 

May  3,  1799. 

Sir:  The  commissioners  having  under  consideration  your 
declaration  of  income  have  directed  me  to  acquaint  you  that 
they  have  reason  to  apprehend  your  income  exceeds  sixty 
pounds  a  year.  They  therefore  desire  that  you  will  reconsider 
the  said  declaration  and  favour  me  with  your  answer  on  or 
before  the  8th  inst. 

I  am  your  obedient  servant, 

W.  B.  LUTTLEY,  Clerk. 
To  this  Mr.  Tooke  replied : 

Sir:  I  have  much  more  reason  than  the  commissioners 
can  have  to  be  dissatisfied  with  the  smallness  of  my  income.  I 
have  never  yet  in  my  life  disavowed  or  had  occasion  to  re- 
consider any  declaration  which  I  have  signed  with  my  name. 
But  the  act  of  Parliament  has  removed  all  the  decencies  which 
used  to  prevail  among  gentlemen,  and  has  given  the  commis- 
sioners (shrouded  under  the  signature  of  their  clerk)  a  right 
by  law  to  tell  me  that  they  have  reason  to  believe  that  I  am  a 
liar.  They  have  also  a  right  to  demand  from  me  upon  oath 
the  particular  circumstances  of  my  private  situation.  In  obedi- 
ence to  the  law,  I  am  ready  to  attend  upon  this  degrading  oc- 
casion so  novel  to  an  Englishman,  and  give  them  every  ex- 
planation which  they  may  be  pleased  to  require. 
I  am,  sir,  your  humble  servant, 

JOHN  HORNE  TOOKE. 


74  INCOME  TAXATION 

the  number  of  those  who  draw  their  incomes  from  what  we 
call  "active  business,"  or  professional  gains,  to  a  degree  of 
which  Americans  have  little  idea.  England  is  a  country  of 
enormous  accumulated  capital  lent  out  in  every  direction 
all  over  the  world,  the  yield  of  which  supports  a  vast  body 
of  persons  in  complete  or  partial  leisure.  Among  us  this 
class  is  comparatively  small.  Nearly  every  American  is  in 
a  greater  or  less  degree  a  trader  or  speculator,  and  is  "turn- 
ing over"  his  capital,  if  he  has  any,  in  some  enterprise  of 
varying  degrees  of  profit. 

The  most  commendable  feature  of  the  English  system 
is  the  extent  to  which  it  favors  the  collection  of  income 
tax  at  the  source ;  but  it  is  not  likely  that  any  law  could 
be  devised  which  would  meet  with  equally  favorable  re- 
sults in  that  respect  in  the  United  States.11 


11.  In  some  of  the  authorities  cited  in  this  chapter  frequent 
references  will  be  found  to  "Pareto's  Law."  which  consists  of  the 
following  mathematical  formula:  if  x  denotes  any  given  income, 
and  y  the  number  of  incomes  equal  to  or  greater  than  x,  then  x^-y 
=  b  a  and  b  being  constants  and  the  value  of  a  usually  being  about 
1.6.  As  applied  to  income  tax  statistics  in  a  number  of  countries 
the  law  works  out  with  great  exactness,  varying  even  less  than  the 
well  established  tables  of  mortality. 

Vilfredo  Pareto.  La  courbe  de  la  repartition  de  la  richesse.  [Ex- 
trait  du  Recueil  public  par  la  Faculte  de  droit  de  1'Universite  de 
Lausanne,  a  1'occasion  de  1'Exposition  nationale  suisse  Geneve,  1906.] 


CHAPTER  V. 


FRANCE. 

This  chapter  might  be  disposed  of  briefly  by  the  state- 
ment that  there  are  no  income  taxes  in  France  j1  but  even 
if  such  a  statement  could  be  truthfully  made  at  the  pres- 
ent moment,  the  prospects  are  that  a  different  situation 
will  present  itself  in  the  immediate  future.  The  world- 
wide movement  in  favor  of  income  taxation,  which  seems 
to  have  reached  every  civilized  country,  has  made  itself 
felt  in  France,  where  the  need  of  some  radical  fiscal  re- 
form has  been  keenly  felt  for  many  years.  The  Chamber 
of  Deputies  has  already  passed  a  bill  which  substitutes  an 
income  tax  for  nearly  all  the  Government  taxes  hereto- 
fore levied  and,  while  the  Senate  may  insist  upon  some 
modifications,  the  probabilities  are  that  a  law  will  be 
agreed  upon  which  will  embrace  the  essential  features  of 
the  present  bill.  It  cannot  be  said  of  this  measure  that 
it  was  hastily  prepared.  On  the  contrary,  it  has  probably 
received  more  preliminary  study  and  consideration  than 
was  ever  accorded  to  a  similar  law  in  any  country.  Dur- 


*.  Some  of  the  present  taxes  in  France  are  based  upon  real  or 
assumed  income.  "The  contribution  personelle  mobiliere  in  32,000 
Communes  is  an  income  tax  on  presumed  ability  to  pay,  assessed 
as  a  super-tax  in  addition  to  the  other  direct  taxes,  by  a  local  jury." 
Speech  of  the  Minister  of  Finance  in  the  French  Chamber,  July 
12,  1906. 


76  INCOME  TAXATION 

ing  the  past  thirty  years  innumerable  schemes  for  taxa- 
tion of  income  have  been  submitted  to  the  French  Parlia- 
ment and  a  great  number  of  commissions,  parlementaire 
and  extra-parlementaire,  have  investigated  the  subject.2 
The  present  proposed  law  has  occupied  the  attention  of 
Parliament  for  more  than  three  years  and  has  given  rise 
to  a  great  amount  of  discussion  in  which  the  most  pro- 
found students  of  political  economy  and  the  ablest  public 
men  have  taken  a  prominent  part.  Whatever  may  be  the 
outcome  of  the  present  agitation  in  France,  it  cannot  fail 
to  be  of  interest  to  Americans  who  are  soon  to  find  the 
same  problem  in  the  foreground  of  national  politics.  The 
history  of  the  present  law  may  be  briefly  summarized  as 
follows : 

In  October,  1906,  Minister  Clemenceau  referred  in 
his  message  to  a  tax  on  incomes  as  one  of  the  reforms 
imperatively  demanded  by  the  French  people.  In  pur- 
suance of  this  suggestion  a  carefully  prepared  bill  was 
presented  by  the  Government  for  the  consideration  of 
Parliament  on  the  7th  of  February,  1907.  This  bill,  to- 
gether with  three  other  projects  which  had  been  presented 
in  the  previous  July,  was  referred  to  the  Commission  on 
Fiscal  Legislation,  consisting  of  thirty-two  members,  of 
which  M.  Camille  Pelletan  was  President.  The  Fiscal 
Commission  made  its  first  report  June  13,  1907,  and  on 
•  the  25th  of  the  same  month,  on  motion  of  M.  Pelletan, 
supported  by  M.  Caillaux,  Minister  of  Finance,  the  bill 
was  made  the  order  of  the  day  from  July  1st.  The  dis- 


2.  The  chief  projects  were  those  of  Casimir  Perier  (1871), 
Bouvier  (1874),  Gambetta  (1876),  the  Commission  of  1885,  Peytral 
(1888),  Rabier  (1890),  Maujan  (1891),  Burdeau  (1894),  the  Com- 
mission of  1894,  Ribot  (1895),  Doumer  (1896),  Cochery  (1896), 
Peytral  (1898),  Rouvier  (1903),  and  the  Fiscal  Commission  of  1904. 


FRANCE  77 

cussion  of  the  bill  lasted  eleven  days,  and  was  then  sus- 
pended until  January  20,  1908,  when  it  was  resumed  and 
continued  until  February  18th.  The  debates  which  fol- 
lowed occupied  most  of  the  time  given  to  the  sessions  for 
a  full  year,  and  finally  culminated  in  the  passage  of  the 
bill  by  the  Chamber  of  Deputies  March  9,  1909,  by  a  vote 
of  388  in  favor  of  the  bill  against  129  opposed,  there  be- 
ing 26  absentees. 

The  opposition  to  the  bill  was  led  by  Jules  Roche, 
whose  brilliant  and  impassioned  speeches  have  since  been 
published  in  book  form;3  while  the  defense  of  the  meas- 
ure was  ably  managed  by  M.  Pelletan,  President  of  the 
Fiscal  Commission  and  M.  Caillaux,  Minister  of  Finance. 
The  law  was  attacked  on  many  grounds,  but  chiefly  on 
account  of  its  inquisitorial  character  and  its  class  dis- 
criminations resulting  from  its  progressive  character  and 
the  numerous  abatements  in  the  lower  grades.  The  sup- 
plemental tax,  which  applies  only  to  incomes  over  5,000 
francs4  ($1,000),  was  especially  inveighed  against  and  it 
was  shown  that  it  would  rest  upon  the  shoulders  of  a 
comparatively  small  class — perhaps  500,000 — of  the  tax- 
payers. In  answer  to  this  M.  Caillaux  said :  "Gentle- 
men, it  is  true  that  in  this  country,  there  are  not  more 
than  500,000  or  600,000  taxpayers  who  have  incomes  of 
more  than  5,000  francs.  But  what  then?  Our  friends 
on  the  right  have  tried  to  excite  your  sympathy  on  be- 
half of  this  class  who  are  about  to  be  called  on  to  bear  a 


3.  Roche,   Jules,   Uimpot   sur  le  Revenu,   1909.     Paris,   Ernest 
Flamarion. 

4.  A  franc  is  equal  to  19.3  cents  of  American  money  and  5,000 
francs  would  be  $965.00,  but  when  only  the  approximate  amount  in 
American  money  is  required  it  is  usually  obtained  by  dividing  the 
number  of  francs  by  five. 


78  INCOME  TAXATION 

small  part  of  the  public  burdens.  For  my  part  I  shall 
reserve  my  solicitude  for  the  millions  and  millions  of 
Frenchmen  who  are  not  exposed  to  this  peril  for  the  ex- 
cellent reason  that  they  do  not  receive  5,000  francs  of  in- 
come in  the  course  of  a  year."  He  also  pointed  out  that 
France  was  no  longer  a  country  of  small  fortunes,  but 
that  six-tenths  of  the  national  wealth  was  owned  by 
260,000  persons  and  that,  while  these  persons  constituted 
one-eightieth  of  the  tax-paying  population,  the  amount 
which  they  contributed  in  the  form  of  indirect  taxes  was 
insignificant  and  the  progressive  features  of  the  law  were 
necessary  to  counterbalance  this  inequality. 

As  was  to  be  expected  the  Socialists  were  strongly  in 
favor  of  the  bill  and  it  is  evident  from  a  perusal  of  the 
debates  that  political  considerations  were  by  no  means 
left  out  of  view  in  framing  the  measure. 

While  it  seems  reasonably  certain  that  public  senti- 
ment will  demand  the  passage  of  an  income  tax  law  in 
France,  it  is  impossible  to  predict  at  the  present  writing 
(October,  1910)  what  changes  may  result  from  the  op- 
position of  the  Senate,  and  it  has  therefore  seemed  best 
to  mention  only  a  few  of  the  salient  features  of  the  law 
as  it  was  passed  by  the  Chamber  of  Deputies. 

In  its  general  outlines  the  proposed  law  bears  most 
resemblance  to  the  Prussian  system,  particularly  in  re- 
spect of  I'impot  complementaire  which  is  substantially 
the  same  as  the  German  Ergaenzungssteuer,  or  supple- 
mentary tax,  except  that  the  rate  is  higher.  The  division 
of  income  into  several  categories  was  evidently  suggested 
by  the  English  and  Italian  laws,  while  the  principles  of 
abatement  and  differentiation  have  been  worked  out,  to 
some  extent,  along  original  lines. 


FRANCE  79 

The  radical  change  which  the  new  law  would  bring 
about  in  the  French  fiscal  system  is  shown  by  its  first 
article  which  provides  for  abolishing  the  following 
taxes  :5 

1.  The  real  estate  tax  on  both  improved  and  unim- 
proved property. 

2.  The  personal  property  tax. 

3.  The  tax  on  doors  and  windows. 

4.  The  license  tax   (patentes),  business    and    pro- 
fessional. 

These  four  taxes,  often  referred  to  as  "les  quatre 
vieilles"  (the  four  old  women),  constitute  the  main 
sources  of  revenue  for  the  National  Government,  as  will 
appear  by  the  following  table  in  which  the  amounts  which 
they  produce  at  present  are  compared  with  the  amounts 
which  it  is  estimated  could  be  secured  from  the  same 
sources  by  an  income  tax : 

c  Present  yield     Estimated  yield 

of  tax  of  income  tax 

Real  Estate   (built  upon) 91,000,000  fr.          98,000,000  fr. 

Real  Estate  (not  built  upon) 105,000,000    "  45,000,000    " 

Personal   property 101,000,000    "          300,000,000    " 

Doors  and  windows 66,000,000    " 

Licenses   138,000,000   " 

Interest  and  Dividends  of  French 

securities    71,000,000    " 

Interest  and   Dividends  of  foreign 

securities    9,000,000    " 

Transfer  tax,  stamp  tax,  etc 109,000,000    " 

Profits  of  Commerce  and  Industry. .  110,000,000 

Profits   of  Agriculture 7,000,000 

Salaries  and  Pensions 7,000,000 

Liberal   professions 4,000,000 

Supplementary   tax 170,000,000 


690,000,000  fr.        741,000,000  fr.8 


5.  The  statement  is  often  made  that  the  proposed  French  law 
substitutes  an  income  tax  law  for  all  other  taxes ;  but  such  is  not 
the  case.     The  Federal  government  retains  some  minor  taxes,  such 
as  the  tax  on  billiard  tables,  clubs,   horses   and   carriages,  etc. 

6.  _  In  preparing  this  table  the  amounts  in  the  first  column,  rep- 
resenting the  yield  of  the  taxes  which  it  is  proposed  to  suppress, 


8O  INCOME  TAXATION 

The  manner  in  which  incomes  are  classified  and  the 
rate  applicable  to  each  class  will  be  seen  from  the  follow- 
ing table : 

/-]„,.  Rate  of  Tax 

(per  cent.) 

1.  Income  of  real  estate  (built  upon) 4 

2.  "        "       (not  built  upon) 4 

3.  personal  property 4 

4.  commerce  and  industry 3.50 

5.  agricultural    pursuits 3 

6.  salaries,  fees  and  pensions 3 

7.  the  liberal  professions  and  all  other  lucrative 
occupations  not  specified  in  the  preceding  classes 3 

The  above  classes,  or  categories,  as  they  are  called  in 
the  law,  permit  a  differentiation  between  earned  and  un- 
earned incomes.  It  was  evidently  considered  that  the 
greater  part  of  the  income  in  classes  1,  2  and  3  was  de- 
rived from  capital,  and  the  rate  is  therefore  higher. 
Class  4  includes  mixed  incomes,  that  is  those  derived 
partly  from  capital  and  partly  from  labor;  while  classes 
5,  6  and  7  are  given  the  lowest  rate  as  being  earned  in- 
comes, or  incomes  derived  from  personal  exertion. 

The  rates  which  would  otherwise  be  proportional  are 
given  a  progressive  character  in  the  lower  grades  by  a 
great  number  of  exemptions  and  abatements,  varying  ac- 
cording to  the  different  classes.  In  general  it  is  assumed 
that  1,250  fr.  ($241.25)  is  the  minimum  of  existence, 


are  taken  from  the  Expose  des  motifs,  Chambre,  session  ordinaire, 
No.  737,  Journal  Official,  Feb.  17,  1907,  and  the  estimate  of  the  yield 
of  the  income  tax  is  that  presented  by  the  Minister  of  Finance  at 
the  session  of  March  2,  1009.  See  L'Impot  sur  le  Revenu,  Adm. 
Dalloz,  p.  15.  According  to  estimates  made  by  Deputy  Renault,  the 
supplementary  tax  (Impot  complementaire)  may  be  expected  to 
produce  150,000,000  francs. 


FRANCE  8 1 

though  in  some  cases  the  revenue  above  625  fr.  ($120.62) 
is  taxed. 

A  sharp  distinction  is  drawn  between  total  exemp- 
tions at  the  bottom  of  the  scale  (degrevctncnts  a  la  base) 
and  deductions  or  abatements  from  the  taxable  portion 
of  income  (deductions  sur  la  partic  taxce  du  revenu).  In 
the  first  four  of  the  classes  given  above  there  is  no  ex- 
emption except  in  a  few  special  cases  where  taxpayers 
having  a  total  income  of  less  than  1,250  fr.  are  allowed 
an  exemption  as  to  625  fr.  In  the  fifth  class  there  is  a 
total  exemption  of  incomes  of  farmers  below7  1,250  fr. 
In  the  fifth  and  sixth  classes  generally  the  exemptions 
may  range  from  1,500  to  3,000  fr.,  according  to  the  size 
of  the  city  or  commune  in  which  the  taxpayer  has  his 
residence. 

Thus : 

In  communes  of  10,000  inhabitants  or  less  the  exemption  is.  .1,500  fr. 

"  "          "  10,000  to   100,000   inhabitants 2,000  fr. 

"  "          "  more  than  100,000  inhabitants 2,500  f r. 

"    Department  of  the  Seine  (Paris)  the  exemption  is 3,000  fr. 

This  grading  of  the  exemptions  is  calculated  to 
counterbalance  to  some  extent  the  higher  cost  of  living 
in  the  larger  cities.  The  justice  and  propriety  of  such  a 
differentiation  is  at  once  apparent  and  the  plan  is  likely 
to  commend  itself  to  other  countries. 

The  abatements  under  the  proposed  law,  may  be  in 
accordance  with  scientific  principles,  but  they  are  more 
intricate  and  involved  than  is  desirable  in  a  law  of  such 
general  application.  Complicated  as  they  are  by  the 
large  number  of  schedules,  the  varying  exemptions  and 
the  abatements  in  the  supplementary  tax,  they  will  render 
it  difficult  for  the  average  citizen  to  estimate  the  amount 


82  INCOME  TAXATION 

of  income  he  is  likely  to  be  called  upon  to  pay.  It  would 
seem  as  though  the  same  progression  might  have  been 
obtained  in  a  simpler  manner  by  changes  of  rates  on  the 
smaller  incomes. 

There  is  no  abatement  in  the  first  and  third  classes. 
In  the  second,  if  the  income  exceeds  1,250  fr.,  but  does 
not  exceed  5,000  fr.  there  is  a  reduction  of 

75%  upon  incomes   up  to     620  francs 

50%      "  "        between   620  and  1,000  francs 

25%  1,000     "     1,250 

In  the  fourth  class,  which  embraces  the  joint  product 
of  labor  and  capital,  the  allowances  are  larger,  being  (if 
total  income  does  not  exceed  20,000  fr.)  : 

six-sevenths  of  the  amount  below  1,500  fr. 

two-thirds  of  the  portion  between   1,501  and  2,500  fr.  and 

one-fourth   "     "  2,501  and  5,000    " 

The  fifth  class  relates  to  farmers,  and  abatements  are 
allowed,  providing  that  the  valeur  locative  rcelle  (rental 
value)  does  not  exceed  12,000  fr.  These  abatements  con- 
sist of 

two-thirds  of  the  amount  between  1,251  and  2,000  francs, 
one-third    "     "  2,001     "     3,000        " 

This  may  seem  simple,  but  as  the  farmer's  income  is 
reckoned  at  one-half  of  the  rental  value  below  5,000  fr. 
and  two-thirds  of  the  rental  value  above  that  sum,  the 
formula  to  determine  the  amount  of  tax  in  the  case  of  a 
farm  having  a  rental  value  of  12,000  fr.  would  be 
12000— (^  of  5000+1/3  of  7000)— 1250— (2/3  of 
750)— (1/3  of  1000)X-03=152.50  francs. 

In  the  fifth  and  sixth  categories,  which  refer  wholly 
to  the  income  from  personal  exertion  the  abatements  are 

five  -  sixths  of  the  taxable  income  up  to  3,000  francs, 

four-sixths   "     "         "  "      between  3,001  and  3,500 

three-sixths"     "         "  "  "        3,501    "     4,000       " 

two-sixths    "     "          "  "  "         4,001    "     4,500       " 


FRANCE 


140 
125 
110 


Without  going  into  the  intricacies  of  the  computations, 
which  must  be  reckoned  separately  for  each  grade,  it  may 
be  of  interest  to  know  that  a  person  having  a  salary  of 
10,000  fr.  (say  $2,000),  would  pay  a  tax  of 

155  fr.  ($31)  if  living  in  a  commune  of  less  than    10,000  inhabitants. 

($28)  "  "        "  "                        "  10,000    to    100.000 

($25)  "  "        "  "                       "  over   100,000 

($22)  "  "       "  "    Department  of  the  Seine. 

The  Supplementary  tax,  known  as  "L'iinpot  comple- 
mentaire  sur  I' ensemble  du  revenu"  is  a  tax  of  5  per  cent 
upon  the  total  income  of  each  single  individual,  or  head 
of  a  family,  in  excess  of  5,000  fr.  regardless  of  its  source 
or  of  the  exemptions  and  abatements  applicable  in  other 
cases.  This  tax  is  expected  to  contribute  between  one- 
fourth  and  one-fifth  of  the  whole  amount  raised  by  in- 
come taxation.  It  is  made  progressive  by  a  provision 
that  the  5  per  cent  rate  shall  apply  to  only 

one  -  fifth    of  the  income  between     5,001  and  10,000  f r 

10,001  "  15,000  ' 
15,001  "  20,000  ' 
20,001  "  25,000  ' 

The  extent  to  which  these  abatements  affect  the  true 
percentage  is  shown  by  the  following  table  :7 

Actual       Amount      Amount      Proportion 


two-fifths 
three-fifths  " 
four-fifths  " 


income 

taxed 

of  tax 

of  tax  to 

Francs 

Francs 

Francs 

actual  income 

5,000 

0 

0 

6,000 

200 

10 

0.16  per  cent. 

7,000 

400 

20 

0.28  " 

8,000 

600 

30 

0.37  " 

9,000 

800 

40 

0.44  " 

10,000 

1,000 

50 

0.5   " 

11,000 

1,400 

70 

0.63  " 

12,000 

1,800 

90 

0.75  " 

13,000 

2,200 

110 

0.84  " 

14,000 

2,600 

130 

0.92  " 

15,000 

3,000 

150 

1.    " 

and  so  on 

to 

20,000 

6,000 

300 

1.5   "   " 

100,000 

85,000 

4,250 

4.25  "   " 

and  to 

1,000,000 

985,000 

49,250 

4.92  "   " 

See  L'Impot  sur  le  Revenu.    Administration  Dalloz,  p.  97. 


84  INCOME  TAXATION 

It  will  be  seen  by  the  above  that,  although  the  rate  is 
nominally  5  per  cent,  it  varies  from  a  very  small  fraction 
of  one  per  cent  to  a  sum  approximating — but  never  quite 
reaching — five  per  cent.  Combining  this  rate  with  that 
of  the  first  class,  for  example,  would  make  the  total  rate 
on  very  large  incomes  nearly  9  per  cent. 

The  provisions  for  the  administration  of  the  law  are 
not  as  elaborate  as  in  England  and  Germany,  and  it  is 
doubtful  whether,  in  view  of  the  temperament  of  the 
French  people,8  they  will  prove  as  effective.  In  France, 
as  in  every  other  country  where  an  income  tax  has  been 
tried,  the  greatest  difficulty  has  been  to  devise  a  plan  for 
ascertaining  the  income  of  each  taxpayer,  \vhich  should 
not  seem  too  harsh  and  inquisitorial.  The  proposed  law 
provides  for  three  methods : 

1.  Valuation  by  administrative  officials. 

2.  Valuation  made  upon  the  basis  of  exterior  signs. 

3.  Declaration  by  the  taxpayer. 

An  example  of  the  first  method  is  seen  in  the  plan  by 
which  certain  officials  estimate  the  income  from  improved 
real  estate  on  the  basis  of  rental  value.  An  instance  of 
the  second  is  found  in  the  case  of  the  supplementary  tax 
on  non-residents  owrning  buildings,  in  which  case  the  in- 
come is  assumed  to  be  seven  times  the  annnual  rental 
value  of  the  building.  Declarations  are  required  from 
all  persons  subject  to  the  supplementary  tax  and  are,  in 
most  cases,  a  necessary  pre-requisite  to  securing  abate- 
ments or  correction  of  excessive  valuations.  The  officials 


8.  Cf.  Parieti.  Traite  des  Impots  Vol.  1,  p.  481.  Vidal.  L'lm- 
pot  sur  la  Revenu,  Revue  Internationale  du  Commerce  de  1'Industrie 
et  de  la  Banque.  Sept.,  1904.  Roche,  L'Impot  sur  le  Revenu,  pp. 
92,  146,  392. 


f 

FRANCE  85 

to  whom  is  entrusted  the  administration  of  the  tax  are 
prohibited  from  disclosing  the  information  which  they 
obtain  relating  to  incomes,  except  through  official 
channels. 

In  considering  the  proposed  law  as  a  whole  one  is 
struck  by  the  absence  of  adequate  provisions  for  collect- 
ing income  at  the  source.9  It  would  seem  as  though  this 
might  possibly  have  been  accomplished  in  respect  to 
rented  property,  salaries  and  pensions,  though  it  would, 
of  course,  result  in  many  reclamations  owing  to  the 
numerous  exemptions  and  abatements. 

If  the  proposed  law  is  finally  passed10  its  operation 
will  be  observed  with  interest  by  all  students  of  political 
economy;  if  it  fails  of  passage  it  will  still  be  instructive 
as  showing  the  conclusions  which  were  reached  by  a  large 
body  of  intelligent  men  after  mature  study  and  delibera- 
tion. 


9.  In  the  case  of  the  interest-bearing  securities  comprised  in 
the  third  category  provision  is  made  for  enregistrement  and  for 
collection  par  voie  dc  retinue  (retention  at  source).  See  Articles 
22  to  29  of  the  "projet  de  Loi"  passed  by  the  Chamber  March  9,  1909. 
10.  As  an  indication  of  the  attitude  of  the  Government  toward  the 
proposed  law,  a  recent  utterance  of  M.  Georges  Cochery,  Minister 
of  Finance,  is  significant.  Speaking  on  behalf  of  the  Government, 
at  a  conference  held  with  the  Budgetary  Commission,  September  26, 
1910,  he  stated  that  he  would  in  no  case  consent  that  the  law  which 
was  passed  by  the  Chamber  should  be  mutilated  or  picked  to  pieces 
(mutile  ou  morcele).  Le  Matin,  September  30,  1910. 


CHAPTER  VI. 


GERMANY— PRUSSIA. 

The  income  tax  laws  in  force  in  Germany  have  not 
been  formulated  in  any  hasty  or  hap-hazard  manner. 
They  reflect  the  best  thought  of  scholars  and  publicists  of 
world-wide  reputation.  There  is  perhaps  no  other 
country  in  which  the  subject  of  political  economy  in  gen- 
eral and  that  branch  of  it  which  relates  to  taxation  in 
particular,  has  received  more  careful,  thorough-going  and 
exhaustive  study  than  it  has  in  Germany;  and  there  is 
probably  no  other  country  in  which  the  conditions  were 
more  favorable  for  the  introduction  of  such  a  law.  The 
Germans  are  a  patriotic  as  well  as  a  law-abiding  people 
and  realize  that  heavy  taxes  are  necessary  to  meet  the 
ever  increasing  demands  of  their  enormous  military 
establishment.  The  Klassensteuer,  or  class  taxes,  which 
preceded  the  income  taxes,  while  not  based  wholly  upon 
income,  embodied  the  principles  of  classification  and  pro- 
gressive taxation  to  such  an  extent  that  the  German  pub- 
lic was  prepared  to  accept  the  same  principles  with 
equanimity  when  applied  to  an  income  tax.  Moreover, 
the  advocates  of  socialism,  who  constitute  a  large  portion 
of  the  population,  have  always  looked  with  favor  upon 
the  progressive  income  tax  as  a  measure  which  was  likely 
to  bring  about  a  more  equal  distribution  of  wealth. 


GERMANY PRUSSIA  87 

But  I  would  not  like  to  be  understood  as  intimating 
the  desirability  of  adopting  the  German  income  tax  law 
in  this  country,  or  as  suggesting  that  equally  successful 
results  could  be  looked  for  under  conditions  so  essentially 
different.  The  minuteness  of  the  police  supervision,  the 
strictness  with  which  the  laws  are  enforced  and  the  com- 
parative stability  and  permanence  of  business  enterprise 
in  Germany,  are  all  conditions  which  are  peculiarly 
favorable  to  the  enforcement  of  an  income  tax  law ;  while 
in  this  country  the  looseness  and  laxity  with  which  our 
laws  are  administered,  the  vast  extent,  complexity, 
mobility  and  variety  of  business  activities,  and  the  greater 
freedom  of  speech  and  action  which  we  enjoy,  all  tend 
to  make  the  problem  a  much  more  difficult  one.  The 
military  service,  which  is  required  of  nearly  every  Ger- 
man citizen  is  calculated  to  impress  very  strongly  upon 
the  soldiers  the  importance  of  prompt,  absolute  and  un- 
questioning obedience  to  constituted  authority  and  the 
lesson  thus  learned  bears  fruit  in  civic  life,  contributing 
in  no  small  degree  to  the  successful  administration  of 
the  laws. 

While  mention  is  often  made  of  the  "German  Income 
Tax,"  the  expression  is,  to  say  the  least,  misleading.  The 
German  Empire  as  such  does  not  levy  any  income  tax.1 
The  twenty-six  states  which  since  the  Franco-Prussian 
War  of  1871-1872,  have  composed  the  German  Empire, 
all  have  complete  or  partial  income  taxes ;  but  the  systems 
which  have  been  adopted  are  extremely  varied,  and  it 
can  hardly  be  said  that  there  is  any  feature  of  their  in- 
come tax  laws  which  is  of  such  general  application  as  to 


1.    Handwoerterbuch  der  Staatswissenschaften,  Vol.  Ill,  3d  Ed. 
(1909)  p.  696. 


INCOME  TAXATION 

make  it  characteristically  German.  It  is  true  that  the 
autonomy  of  the  separate  states  as  regards  foreign  rela- 
tions is  merged  in  that  of  the  Empire;  but  on  the  other 
hand,  their  sovereignty  in  respect  of  local  government 
and  particularly  in  matters  of  taxation  is  fully  recognized 
by  the  Imperial  Constitution. 

There  is  nothing  in  the  constitution  of  the  German 
Empire  to  prevent  it  from  levying  income  taxes  if  it 
should  desire  to  do  so;  but  it  is  not  likely  to  enter  the 
field  of  income  taxation  which  is  already  so  fully  oc- 
cupied by  the  separate  states.  The  lack  of  uniformity  in 
the  various  states  is  an  evil  which  has  made  itself  felt, 
but  the  smaller  political  subdivisions  are  jealous  of  any 
measure  which  would  tend  to  greater  centralization  or 
which  would  have  the  appearance  of  an  encroachment 
upon  their  time-honored  source  of  revenue. 

Prussia.  It  would  lead  too  far  afield  to  attempt  a 
complete  analysis  of  all  the  systems  in  vogue  in  the  differ- 
ent German  states  and  it  has  therefore  seemed  best  to 
devote  one  chapter  to  a  somewhat  detailed  account  of 
the  Prussian  law,  and  another  to  an  outline  of  the 
methods  followed  in  the  smaller  states.  Prussia  is  the 
most  important,  as  it  is  one  of  the  most  progressive  of 
the  German  states.  It  includes  more  than  half  the 
population  of  Germany2  and  although  it  was  one  of  the 
last  of  the  States  to  adopt  an  income  tax  it  has  developed 
a  system  which,  while  not  free  from  defects,  possesses 
many  excellent  features. 


2.  The  population  of  Prussia  at  the  end  of  the  year  1905  was  37,- 
293,323.  See  Statistisches  Jahrbuch  fuer  den  preussischen  Staat  for 
the  year  1909. 


GERMANY PRUSSIA  89 

:• 

The  Prussian  income  tax  law  now  in  force  is  based 
upon  the  law  of  June  24,  1891,  the  law  of  July  14,  1893, 
regulating  the  income  tax  to  be  levied  by  local  bodies — 
municipal  and  rural — (Kommunal  'Abgabengesetz),  the 
law  of  June  19,  1896,  and  the  amendments  of  March  22 
and  May  26,  1909.  The  law,  with  the  amendments,  com- 
prises over  100  paragraphs  and  the  following  is  merely  a 
brief  summary3  of  its  most  important  provisions. 

Who  is  liable  to  income  tax.  (Section  1)  The  first 
three  sections  of  the  law  are  devoted  to  the  duty  of  pay- 
ing the  tax  subjectively  considered  (Subjektive  Steuer- 
pflicht). 

1.  Prussian  subjects,  except 

a)  Those  who  are  not  residents  of  Prussia,  but  re- 
side in  some  other  German  state. 

b)  Those   who,   though  living  in   Prussia,  have  an 
official  domicil  in  another  German  state. 

c)  Those  who  have  permanently  resided  abroad  for 
more  than  two  years. 

2.  Subjects   of   other   German   states   domiciled   in 
Prussia,  officially  or  otherwise. 

3.  Foreigners  domiciled  in  Prussia  or  remaining  in 
Prussia  for  commercial  purposes  or  those  who  have  re- 
sided in  Prussia  for  one  year. 

4.  Corporations,  joint  stock  companies,  mining  com- 
panies  and  registered   societies    or    associations   whose 
commercial  activity  extends  beyond  the  circle  of  their 
members. 

5.  Co-operative  societies,  whether  they  do  business 
outside  of  the  circle  of  their  members  or  not. 

6.  Limited  liability  companies,   except   public   cor- 
porations and  those  which  devote  their  income  exclusive- 
ly to  charitable,  scientific  and  artistic  purposes. 


3.  Translated  and  condensed  from  "Einkommenstenergesetz"  by 
A.  Fernow,  7th  Ed.,  dated  1908,  but  containing  laws  of  March  22 
and  May  26,  1909. 


9O  INCOME  TAXATION 

7.  Without  regard  to  nationality,  domicil  or  length 
of  sojourn,  persons  receiving  income  from  the  Prussian 
Government  in  the  form  of  salaries,  pensions,  annuities, 
etc.,  or  deriving  income  from  Prussian  real  property  or 
commercial  or  industrial  institutions. 

By  Section  3  certain  members  of  the  royal  family  and 
other  nobility  and  certain  accredited  diplomatic  repre- 
sentatives are  exempt  from  the  operation  of  the  tax. 

What  incomes  taxable.  (Sections  4  and  5)  In  con- 
sidering the  operation  of  the  tax  objectively  (objektive 
Steuerpflicht)  the  law  first  provides  for  certain  exemp- 
tions and  exceptions.  All  incomes  under  900  marks, 
whether  of  persons  or  corporations  are  exempt,  and  there 
is  excepted  from  the  operation  of  the  law  the  income 
derived : 

1.  From  real  estate  or  commercial    undertakings  in 
other  German  states  or  from  salaries,  pensions  or  half -pay 
of  military  or  civil  officials  accruing  to  them  from  other 
states. 

2.  By  foreigners  from  real  estate  or  industrial  enter- 
prises abroad,  providing  such  foreigners  are  not  residents  in 
Prussia  for  commercial  purposes. 

3.  From  military  pay  of  non-commissioned  officers  and 
from  soldiers  and  other  persons  on  the  active  list  of  the 
army  and  navy. 

4.  From  certain  payments  received  by  Imperial  and 
Prussian  officials  residing  in  foreign  lands. 

5.  Payments  which  accrue  as  a  result  of  insurance 
against  sickness. 

6.  Sinking  funds. 

What  constitutes  income.  (Section  6)  Income  in- 
cludes the  total  receipts  of  a  person  liable  to  pay  the  tax 
in  money  or  money's  worth  from 

1.  Capital. 

2.  Real  estate  and  rents  including  rent  value  of  the 
habitation  occupied  by  the  owner. 


t 

t 

GERMANY — PRUSSIA  9! 

3.  Commerce  and  trade,  including  mining. 

4.  All  profitable  occupations  and  rights  to  periodical 
payments  or  monetary  advantages  which  do  not  come  under 
heads  1,  2  and  3. 

Extraordinary  receipts,  such  as  moneys  received  from 
inheritance,  gifts,  life  insurance  or  the  sale  of  property 
(the  sale  of  property  not  being  one's  business),  are  not 
considered  as  taxable  income,  but  as  an  increase  of  the 
capital ;  and  gains  and  losses  in  the  amount  of  capital  are 
not  considered,  except  in  so  far  as  by  reason  of  them  the 
product  of  the  capital  is  increased  or  diminished. 

What  to  be  deducted  from  gross  income.  ( Section  8 ) 
From  the  gross  income  designated  in  Section  6  there 
should  be  deducted  the  expenditures  incurred  for  the 
acquisition,  security  and  maintenance  of  the  income  and 
that  which  produces  the  income. 

Under  the  head  of  expenses  of  production,  the  law 
recognizes : 

1.  Contributions  towards  public  irrigation  works. 

2.  Amounts  payable  towards  direct  municipal  taxation 
by  way  of  ground  tax  or  building  tax  or  industrial  tax. 

3.  Contributions  payable  to  official  trade  associations. 

4.  Amounts  necessary  to  make  good  the  ordinary  wear 
and  tear  of  buildings  and  machinery. 

There  is  also  to  be  deducted  from  total  income : 

1.  Interest  payable  on  debts. 

2.  Annuities  and  permanent  obligations  due  upon  pri- 
vate contracts  or  as  an  incident  of  church  patronage. 

3.  Legal  and  contractual  contributions  towards  insur- 
ance against   sickness,    accident,    old    age,    insurance   for 
widows  and  orphans,  payments  towards  pension  funds,  pro- 
vided, however,  that  the  total  amount  for  this  purpose  does 
not  exceed  in  any  year  600  marks. 

4.  Payments  made  under  contract  for  the  gradual  re- 
duction of  a  mortgage  debt,  providing  such  payment  does 
not  exceed  one  per  cent,  of  the  capital  and  the  amount  of 
600  marks  per  annum. 


92  INCOME  TAXATION 

Among  the  items  not  deductable  from  income  are  : 

1.  Expenses  incurred  in  improving  and  increasing  the 
original  capital  or  source  of  income  or  in  extending  a  busi- 
ness. 

2.  Household  expenses  of  the  taxpayer  and  moneys 
paid  for  support  of  those  dependent  upon  him  and  especially 
all  expenses  for  the  gratification  of  personal  needs,  such  as 
rent  of  house,  food,  clothing,  service,  attendance,  education, 
including  the  value  of  annual  products  used  towards  these 
ends. 

Period  for  which  income  reckoned.  (Section  9)  A' 
distinction  is  made  in  this  section  between  persons  and 
corporations,  and  a  further  distinction  is  made  between 
the  gains  from  business  in  trade,  commerce  and  mining 
by  persons  bound  to  keep  commercial  books,  and  other 
incomes.  The  law  seems  to  contemplate  first  that  the  in- 
come of  a  natural  person  shall  be  determined  upon  the 
basis  of  the  status  of  the  various  sources  of  his  income 
at  the  beginning  of  the  taxing  year.  It  is  then  provided 
that  profits  in  trade,  commerce  and  mining  made  by  per- 
sons who  are  bound  to  keep  books  shall  be  assessed  by  the 
average  of  the  three  working  years  immediately  preced- 
ing the  year  in  which  the  tax  is  levied.  If  books  have 
been  kept  for  a  shorter  period  only,  the  income  may  be 
estimated  upon  the  average  of  such  shorter  period  and, 
in  calculating  this  average,  losses  in  any  year  may  be  de- 
ducted from  the  profit  of  the  other  years.  In  practice 
the  assessment  may  be  said  to  rest  generally  in  all  other 
cases  upon  the  working  result  of  the  year  immediately 
preceding  the  fiscal  year.  The  method  of  averaging  for 
three  years  may  be  extended  to  farming  operations,  if 
proper  books  are  kept  of  the  receipts  and  expenses.  The 
assessment  of  corporations  is  based  upon  the  average 
results  of  the  three  working  years  preceding.  Liability 


GERMANY PRUSSIA  93 

of  corporations  to  pay  income  tax  begins  only  from  the 
time  when  a  surplus  exists;  and  the  assessment  operates 
from  the  first  of  the  month  immediately  succeeding  this 
acquired  profit.  Incomes  of  corporations  other  than  com- 
panies with  limited  liability  are  composed  of  the  profits 
which  are  divided  in  the  form  of  dividends.  Amounts 
used  to  pay  off  debts  or  the  original  capital,  or  used  for 
the  improvement  or  extension  of  the  business,  or  for  the 
formation  of  a  reserve  fund  (except  in  the  case  of  in- 
surance companies),  in  so  far  as  they  exceed  3j/2  per 
cent  of  the  paid-up  capital,  are  reckoned  as  income.  The 
taxable  income  of  companies  with  limited  liability  con- 
sists of  the  working  profits  of  the  company. 

Section  10  provides  that  the  head  of  the  household 
shall  be  assessed  upon  his  own  income  and  that  the  in- 
come of  his  wife  shall  be  included  unless  she  is  per- 
manently separated  from  him,  in  which  case  it  is  assessed 
to  her,  and  the  income  of  the  children  is  also  included  in 
so  far  as  it  is  controlled  or  used  by  the  parents. 

Section  11  defines  at  some  length  the  various  forms 
of  income  from  capital. 

Section  12  is  chiefly  devoted  to  the  methods  of  esti- 
mating incomes  from  real  estate  and  ground  rents.  A 
peculiar  provision  of  that  section  relates  to  such  forests 
as  are  not  managed  upon  a  systematic  plan.  The  receipts 
from  such  forests  are  not  reckoned  as  income  unless 
they  exceed  one-tenth  of  the  total  value  of  the  timber. 

Section  13  is  devoted  to  an  analysis  of  income  re- 
ceived from  trade,  commerce  and  mining,  while  Section 
14  gives  a  more  extended  definition  of  what  is  meant  by 
income  from  profitable  occupations  and  periodical  pay- 
ments or  pecuniary  benefits. 


94 


INCOME  TAXATION 


Section  15  relates  to  the  methods  of  ascertaining  the 
incomes  of  stock  companies  in  general,  while  Section  16 
defines  net  income  of  limited  liability  companies. 

Rates  of  Taxation.  The  scale  of  rates  provided  for  in 
Section  17  applies  to  all  incomes,  except  those  earned  by 
limited  liability  companies.  For  the  sake  of  uniformity 
and  to  make  the  table  more  useful  we  have  added  the 
amounts  in  American  money  and  computed  the  percent- 
ages: 


Income 

Marks        Dollars        Marks 

900 

($   214)  to    1,050 

Over  1,050 

(      250)   "      1,200 

1,200 

(      286)   "      1,350 

1,350 

(      321)   "      1,500 

'      1,500 

(      357)   "      1,650 

1,650 

(      393)   "      1,800 

1,800 

(      428) 

2,100 

2,100 

(      500) 

'      2,400 

2,400 

(      571) 

'      2,700 

2,700 

(      643) 

'      3,000 

3,000 

(      714) 

'      3,300 

3,300 

(      785) 

'      3,600 

3,600 

(      857) 

'      3,900 

3,900 

(      925) 

'      4,200 

4,200 

(  1,000)    '      4,500 

4,500 

(  1,071)   "      5,000 

5,000 

(   1,190) 

5,500 

5,500 

(  1,309) 

'      6,000 

6,000 

(  1,428) 

'      6,500 

6,500 

(  1,547) 

'      7,000 

7,000 

(   1,666) 

'      7,500 

7,500 

(  1,785) 

'      8,000 

8,000 

(  1,904) 

'      8,500 

8,500 

(  2,033) 

'      9,000 

9,000 

(  2,142) 

'      9,500 

9,500 

(  2,261)    '    10,500 

Tax     Percentages 
Marks  Dollars 

6 

(  1-43) 

.66  to  .57 

9 

(  2.14) 

.85  "   .76 

12 

(  2.86) 

1.   "   .88 

16 

(  3.81) 

1.18  "  1. 

21 

(  5.  ) 

1.4  "  1.27 

26 

(  6.19) 

1.57  "  1.44 

31 

(  7.38) 

1.72  "  1.47 

36 

(  8.63) 

1.71 

r  1.5 

44 

(10.47) 

1.83 

1.63 

52 

(12.37) 

1.92 

1.73 

60 

(14.28) 

2. 

1.81 

70 

(16.66) 

2.12 

1.94 

80 

(19.04) 

2.22 

2. 

92 

(21.90) 

2.35 

2.19 

104 

(24.75) 

2.45 

'  2.31 

118 

(28.08) 

2.62 

2.36 

132 

(31.12) 

2.64 

2.4 

146 

(34.75) 

2.65 

2.43 

160 

(38.08) 

2.66 

2.46 

176 

(41.88) 

2.7 

2.51 

192 

(45.80) 

2.74 

2.56 

212 

(50.46) 

2.82 

2.65 

232 

(55.22) 

2.9 

2.73 

252 

(59.98) 

2.96 

2.8 

276 

(65.69) 

3.06 

2.9 

300 

(71.40) 

3.15    2.85 

The  tax  rises  from  these  rates  in  the  case  of  higher 
incomes  as  follows : 


Incomes 
exceeding 

Marks 

30,500 

30,500 

32,000 

78,000 


To 

inclusive 

Marks 

30,500 

32,000 

78,000 

100,000 


In  grades 
of 

Marks 
1,000 
1,500 
2,000 
2,000 


The  tax  is 

increased  by 

Marks 

30 

60 

80 

100 


GERMANY PRUSSIA 


95 


In  the  case  of  incomes  above  100,000  m.  to  105,000 
m.  inclusive,  the  tax  amounts  to  4,000  m.  and  from  that 
point  it  rises  at  the  rate  of  200  m.  for  every  additional 
grade  of  5,000  m.4 

In  the  case  of  companies  with  limited  liability  the 
rates  are  as  follows  : 


For  incomes 

exceeding 

Marks 

900 
1,050 
1,200 
1,350 
1,500 
1,650 
1,800 
2,100 
2,400 
2,700 
3,000 
3,300 
3,600 


To  For  incomes 

(inclusive)    Tax        exceeding 
Marks       Marks          Marks 


1,050 
1,200 
1,350 
1,500 
1,650 
1,800 
2,100 
2,400 
2,700 
3,000 
3,300 
3,600 
3,900 


6 

10 
14 
18 
24 
30 
36 
42 
48 
56 
66 
76 
86 


3,900 
4,200 
4,500 
5,000 
5,500 
6,000 
6,500 
7,000 
7,500 
8,000 
8,500 
9,000 
9,500 


To 

(inclusive) 

Tax 

Marks 

Marks 

4,200 

96 

4,500 

112 

5,000 

132 

5,500 

148 

6,000 

164 

6,500 

180 

7,000 

200 

7,500 

220 

8,000 

240 

8,500 

260 

9,000 

280 

9,500 

300 

10,500 

340 

The  tax  rises  in  the  case  of  higher  incomes  as  fol 
lows: 


Incomes 
exceeding 
Marks 
10,500 
46,500 
48,000 


To 

inclusive 
Marks 
46,500 
48,000 
100,000 


For  every 

Marks 

1,000 

1,500 

2,000 


The  tax  is 
increased  by 
Marks 
40 
60 
100 


In  the  case  of  incomes  from  100,000  m.  to  104,000  m. 
inclusive,  the  tax  amounts  to  4,600  m.     It  rises  in  the 


4.  It  will  be  noticed  that  the  rate  is  regressive  from  the  per- 
centage standpoint  as  to  the  amounts  in  any  one  of  the  first  26  grades. 
For  example,  in  the  case  of  the  third  grade  embracing  incomes  of 
from  1,200  to  1,350  M.  the  tax  of  12  m.  would  be  one  per  cent  of 
the  first  amount,  but  would  be  only  eight-tenths  of  one  per  cent,  of 
the  latter  amount.  In  one  case  even  the  grades  are  partly  regressive 
so  that  2,100  M.  in  the  eighth  grade  really  pays  a  smaller  per  cent, 
than  1,800  M.  in  the  preceding  grade.  In  the  higher  grades  the  tax 
is  intended  to  approximate  four  per  cent.  The  rate  is  proportional 
(at  three  per  cent.),  from  9,500  to  30,500  m.,  as  to  the  arithmetical 
mean  of  the  extremes  of  each  grade.  For  incomes  over  100,000  m. 
the  rate  is  proportional  at  four  per  cent,  on  the  lowest  amount  of 
each  grade. 


96  INCOME  TAXATION 

case  of  higher  incomes,  for  every  grade  of  4,000  m.  by 
180  marks. 

Abatements.  Section  19  provides  that  if  a  person  is 
assessed  for  a  taxable  income  of  not  more  than  3,000  m. 
($714)  and  is  legally  bound  to  support  children  or  other 
relatives,  a  reduction  of  50  m.  ($12)  from  the  taxable 
income  is  granted  for  each  such  member  of  the  family. 
When  three  or  more  such  members  have  to  be  supported 
the  reduction  amounts  to  a  full  grade  of  the  table  of 
rates ;  and  when  there  are  five  or  more  such  members  the 
reduction  amounts  to  two  grades.  In  case  the  income  is 
between  3,000  m.  and  6,500  m.  there  is  a  reduction  of  one 
grade  in  case  three  or  four  children  or  relatives  have  to 
be  supported  and  of  two  grades  if  the  number  is  five  or 
more.5  In  fixing  the  number  of  members  of  the  family 
which  are  to  be  considered  under  this  section,  the  wife  is 
not  included,  nor  are  those  children  above  the  age  of 
fourteen  years,  who  are  permanently  occupied  in  the 
agricultural  or  industrial  enterprise  of  the  person  as- 
sessed, or  who  enjoy  an  income  of  their  own  of  more 
than  half  the  ordinary  local  wage  calculated  with  due  re- 
gard to  age  and  sex. 

Under  Section  20  in  fixing  the  amount  of  taxable  in- 
come of  any  person  whose  income  does  not  exceed  9,500 
m.,  the  assessing  officials  are  authorized  to  take  into  con- 


5.  Section  19  has  been  amended  by  the  law  of  May  26,  1909,  so 
that  persons  whose  income  does  not  exceed  6,500  m.  are  entitled  to 
a  reduction  of  one  grade  if  they  have  two  children  or  other  relatives 
whom  they  are  legally  bound  to  support.  If  the  number  of  depend- 
ents is  three  or  four  the  reduction  is  two  grades ;  if  five  or  six,  three 
grades ;  and  allowance  of  one  grade  is  made  for  each  dependent 
above  six.  For  persons  having  incomes  of  more  than  6,500  m.,  but 
not  exceeding  9,500  m.,  the  abatement  is  one  grade  for  three  de- 
pendents, two  grades  for  four  or  five  and  one  grade  for  every  two 
additional. 


GERMANY PRUSSIA  97 

sideration  any  unusual  conditions  which  aave  arisen  to 
affect  unfavorably  the  source  of  income,  arid  to  grant 
abatements  accordingly,  but  not  to  exceed  three  grades. 
The  conditions  which  might  thus  be  taken  into  considera- 
tion consist  only  of  extraordinary  burdens  which  arise  in 
connection  with  the  support  and  education  of  children  or 
in  connection  with  the  duty  of  supporting  impecunious 
relatives  or  from  continued  illness  or  other  especially 
serious  calamities. 

Assessment.  The  portion  of  the  law  which  relates  to 
the  assessment  and  levy  of  the  tax,  comprising  Sections 
21  to  60,  is  very  carefully  worked  out  and  contains  many 
excellent  features.  As  the  first  step  of  the  proceeding,  the 
official  head  of  every  community  (Gemeinde-  odcr  Guts- 
V  or  stand)  must  prepare  a  complete  list  of  all  persons  and 
corporations  or  legal  entities  within  his  district  who  are 
liable  for  the  payment  of  income  tax;  also  of  all  real 
properties  and  commercial  enterprises  within  the  district 
for  which  income  tax  is  payable  by  non-residents.  Every 
owner  of  occupied  premises,  or  his  representative,  must 
supply  the  official  in  question  with  a  schedule  of  the  per- 
sons living  upon  such  property,  their  names,  occupations, 
date  and  place  of  birth,  and  religion;  and,  in  case  of  work- 
men, servants  and  apprentices  giving  also  the  name  of 
the  employer  and  the  place  of  employment.  For  this  pur- 
pose every  head  of  a  household  is  required  to  supply  the 
owner  of  the  occupied  premises  with  a  schedule  of  the 
persons  in  his  charge  (including  those  who  are  residents 
away  from  home,  as  pupils,  apprentices,  etc.).  Work- 
men, servants  and  business  employees  are  bound  to  supply 
the  head  of  the  household  with  the  necessary  information 
concerning  their  employers  and  place  of  employment. 


9«  INCOME  TAXATION 

Whoever  permanently  employs  in  his  household  or  in 
connection  with  his  profession  or  trade  other  persons  to 
whom  he  pays  salaries  or  wages  is  required,  if  that  in- 
come so  paid  does  not  exceed  the  sum  of  3,000  m.,  to 
make  return  thereof  to  the  official  head  of  the  munici- 
pality or  community  within  whose  district  his  trade  or 
profession  is  carried  on,  and  the  requirements  of  such 
return  are  set  forth  in  detail. 

On  the  strength  of  the  information  thus  derived  the 
official  heads  of  the  various  communities  make  returns  of 
the  probable  income  of  all  those  persons  within  their  dis- 
trict who  are  liable  to  pay  income  tax. 

Declaration  of  income.  Every  person  enjoying  an 
income  in  excess  of  3,000  m.,  which  is  liable  to  income 
tax,  is  notified  by  public  advertisement  and  thereby  re- 
quired to  make  declaration  on  special  forms  within  a 
stated  limited  period.  For  corporations,  the  declaration 
must  be  accompanied  by  annual  reports,  minutes  of  gen- 
eral meetings  relating  to  same,  etc.  Limited  liability 
companies  also  are  bound  to  hand  in  their  balance  sheets, 
and  the  income  derived  from  such  companies  must  be 
separately  returned.  If  any  abatements  or  reductions  are 
demanded  they  must  be  noted  also  in  the  return.  In  case 
it  should  become  necessary  to  estimate  the  income,  the 
declaration  may  be  accompanied  by  documents  certifying 
the  estimate  to  be  correct.  If  the  return  is  not  made  with- 
in the  period  limited  by  the  authorities,  a  fine  is  incurred 
amounting  to  5  per  cent  of  the  income  tax  payable  and 
this  fine  increases  to  25  per  cent  when  a  second  period, 
fixed  by  the  authorities,  has  been  disregarded.  The  de- 
clarations of  income  of  persons  under  parental  control  or 


GERMANY PRUSSIA  99 

under  guardianship,  and  those  for  corporations  are  made 
by  the  proper  representatives. 

The  next  step  in  the  proceeding  is  a  provisional  or 
preliminary  assessment  made  by  a  special  board  ( Vorein- 
schaetzungskonimission}or  Preliminary  Assessment  Com- 
mission, which  considers  the  incomes  below  3,000  m. 
This  is  followed  by  a  general  assessment  commission 
(Veranlagungskommission)  presided  over  by  a  govern- 
ment official  whose  work  is  chiefly  concerned  with  the 
incomes  above  3.000  m.  From  the  decision  of  this  com- 
mission there  is  a  provision  for  appeal  to  the  Assessment 
Commission  (Einschaetzungskonimission}  and  then  to 
an  Appeal  Board  (Berufungskommission) ;  and  in  case 
of  incomes  exceeding  3,000  m.  to  the  Oberverwaltungs- 
gericht,  a  higher  Appeal  Court. 

Fluctuation  of  income.  By  Sections  61  to  66  pro- 
vision is  made  for  any  great  or  unusual  changes  in  in- 
come, but  a  reduction  of  income  of  less  than  one-fifth  is 
not  considered. 

Payment  of  Taxes.  The  tax  is  payable  quarterly, 
within  the  first  half  of  the  second  month  of  each  quarter. 
These  payments  cannot  be  delayed  through  claims  for  re- 
dress, but  may  be  made  under  protest. 

Municipal  income  tax.  In  addition  to  what  might 
be  called  the  government  income  tax  there  are  municipal 
income  taxes  which  are  assessed  at  a  certain  percentage 
of  the  government  tax  and  constitute  an  addition  of  from 
100  to  200  per  cent.  The  average  amount  thus  levied,  in 
upwards  of  thirty  of  the  most  important  Prussian  cities, 
was  154  per  cent  of  the  government  tax,  so  that  upon  an 
income  of  100,000  m.  the  two  taxes  together  would 
amount  to  about  10  per  cent.  It  is  estimated  that  these 


IOO  INCOME  TAXATION 

municipal  income  taxes  yield  48-j/2%  of  the  total  taxes 
raised  for  municipal  purposes  in  the  cities  where  they  are 
levied. 

Supplementary  taxes.  In  addition  to  the  income  tax 
proper  there  is  the  Ergaensungssteuer  (supplementary 
and  complementary  tax)  sometimes  called  the  Ver- 
moegenssteuer,  or  wealth  tax.  This  tax  was  provided 
for  by  the  law  of  July  14,  1893,  which  has  been  in  force 
since  April  1,  1895.  It  was  designed  as  a  substitute 
for  the  three  forms  of  taxation  wrhich  the  general 
Government  released  to  the  provinces,  to-wit : 

1.  Grundsteuer  (Real  estate  tax). 

2.  Gebaeudesteuer  (House  tax). 

3.  Gewerbesteuer  (Tax  on  industries). 

The  tax  is  levied  upon  persons  liable  to  income  tax 
and  is  based  upon  the  ensemble  of  wealth  in  real  and  per- 
sonal property  of  every  kind,  thus  corresponding  very 
closely  with  the  impot  complementaire  in  the  proposed 
French  law. 

There  are  certain  deductions,  such  as  debts,  entail 
charges,  household  furniture,  etc.  The  following  per- 
sons are  exempt  from  the  tax  : 

a.  Those  whose  taxable   property    does  not  exceed 
6,000  m. 

b.  Those    whose    annual    income    does  not  exceed 
900  m.  and  whose  total  property  is  not  worth  20,000  m. 

c.  Women,  orphans,  etc.,  in  certain  cases,  if  their 
income  does  not  exceed  1,200  m.  and  the  value  of  their 
property  is  less  than  20,000  m. 

Without  attempting  a  full  description  of  this  tax, 
which  is  only  to  a  partial  extent  a  tax  on  income,  it  will 
perhaps  suffice  to  say  that  the  rate  is  one-half  mark  per 


GERMANY PRUSSIA  IOI 

thousand  on  the  lowest  amount  of  each  one  of  a  large 
number  of  grades.  On  the  broad  assumption  that  prop- 
erty or  wealth  yields  an  income  of  4  per  cent  the  tax 
would  work  out  at  a  rate  of  about  1^4  per  cent,  or,  under 
the  new  law,  a  little  over  \y2  per  cent.  The  amount 
realized  by  this  tax  has  been  about  one-sixth  of  the 
amount  raised  by  the  income  tax  proper. 

Super-tax.  To  meet  a  deficit  of  "soine  fifty  million 
marks,  the  Government  undertook  to  raise  'aoout  half  of 
this  sum  from  additions  to  the  income:  tax'  arid  the  're- 
mainder from  stamp  duties  and  other  sources.  The  addi- 
tions (Zuschlaege)  to  the  income  tax  are  percentual  and 
are  levied  in  this  form  in  order  that  they  shall  not  become 
a  basis  for  increased  municipal  income  taxation.  This  tax 
is  in  the  nature  of  a  "tax  upon  a  tax"  and  is  only  tempor- 
ary and  provisional  until  a  complete  reorganization  of  the 
system  of  direct  state  taxation  can  be  accomplished.  The 
Government  has  undertaken  to  effect  such  reorganization, 
involving,  for  example,  a  more  systematic  and  scientific 
progression,  within  three  years.  The  percentages  levied 
may  be  seen  from  the  following  table : 

Incomes  To  Physical  Non-physical  persons 

exceeding       inclusive      persons       Limited  Share    Companies 

(Marks)      (Marks)                          Liability  Share    partnerships 

Companies  Mining   Companies 

1,200                 3,000               5%               7.5%  10% 

3,000       10,500      10"      15  "  20" 

10,500      20,500      15"      22.5"  30" 

20,500      30,500     20"      30  "  40" 

30,500                25"      40  "  50" 

Supplementary  tax 25  " 

The  rates  are  not  as  excessive  as  might,  at  first  glance, 
be  supposed.  For  example,  the  regular  income  tax  on  an 
income  of  3,000  m.  would  be  60  m.  and  the  super-tax  of 
20  per  cent  would  be  one-fifth  of  that  sum,  or  12  m., 


IO2 


INCOME  TAXATION 


bringing  the  total  income  tax  up  to  72  m.  ($20).  The 
highest  rate  would  not  exceed  6  per  cent,  that  is,  4  per 
cent  plus  50  per  cent  of  4  per  cent.  The  amount  of  this  tax 
for  the  year  1909  was  46,400,000  m.  ($11,000,000). 

Increment  tax.  A  number  of  the  larger  cities  in  Ger- 
many have  levied  a  Wertzuwachssteuer,  or  tax  on  the  so- 
called  unearned  increment  in  land  values,  designed 
f:c  reach  '  accretions  of  income  which  result  from 
advances  in  land  values.  For  example  in  Cologne,  under 
:  a  law"  passed  in  190-5;' there  is  a  tax  on  the  increased  value 
of  real  estate  since  the  date  of  the  last  transfer,  if  such 
increase  exceeds  10  per  cent,  and  this  increment  tax  is 
calculated  according  to  the  following  scale : 

A.    Where  not  more  than  five  years  have  elapsed  since 
a  previous  change  of  ownership : 

If  the  increase  in  value  exceeds 

10%,  but  not    20%,  the  rate  of  tax  is  10%  of  the  increase 


20%, 
30%, 

30%, 
40%, 

«       « 

a     a      i 

11% 
12% 

40%, 

50%, 

13% 

50%, 
60%, 

60%, 
70%. 

•       • 

a     ii     i 

14% 
15% 

70%, 
80%, 
90%, 
100%, 

80%, 
'      90%, 
'    100%, 
'    110%, 

•       • 

n     a      i 

16% 

17% 
18% 
19% 

110%, 
120%, 

< 

'    120%, 
'    130%, 

•       • 

a    a      ,i 

20% 

21% 

130%, 
140%,     ' 
150%,     ' 

'    140%, 
'    150%,     ' 
'    160%,     ' 

i      a 

a     a     a 

22% 
23% 
24% 

If  the  increase  in  value  exceeds  160%,  the  rate  of  tax  is  25%  of 
the  increase. 

B.  When  more  than  five  years,  but  not  more  than  ten 
years,  have  elapsed  since  the  previous  change  of  owner- 
ship, two-thirds  of  the  above  rates  are  levied. 


GERMANY PRUSSIA  103 

C.  Where  more  than  10  years  have  elapsed,  one-third 
of  the  rates.  This  tax  is  in  addition  to  a  transfer  tax 
(Umsatesteuer*)  of  2  per  cent.G 

A  bill  has  been  introduced  in  the  Reichstag  which 
abolishes  all  taxes  of  the  class  above  described  imposed 
by  mimicipalites  and  which  substitutes  a  general  unearned 
increment  tax.  The  revenue  from  this  tax  is  to  be 
divided  into  three  parts,  40  per  cent  going  to  the  munici- 
palities, 10  per  cent  to  the  provinces  and  50  per  cent  to 
be  retained  by  the  Imperial  government.  As  originally 
introduced,  the  bill  provided  for  a  graduated  tax  ranging 
from  oj/2  per  cent  where  the  increased  values  did  not  ex- 
ceed 10  per  cent,  to  12  per  cent  where  the  unearned  in- 
crement was  above  400  per  cent.  This  bill  was  referred 
to  a  special  commission  which  held  several  sessions  in  the 
month  of  May,  1910,  and  revised  the  law  in  numerous 
particulars.  It  is  not  expected,  however,  that  the  bill  will 
come  before  the  full  assembly  of  the  Reichstag  for  action 
until  autumn.7 

Financial  Results.  Before  giving  any  statistical  re- 
sults it  may  be  well  to  mention  the  fact  that  the  popula- 
tion of  Prussia,  according  to  the  census  of  1905,  was 
37,293,324,8  which  corresponds  quite  closely  with  the 
population  of  the  United  States  during  the  later  years  of 
the  Civil  War  income  tax  period.9  The  wealth  of  Prussia 
has  been  recently  estimated  at  about  130  billion  marks 


8.  The  amount  raised  by  this  tax  has  thus  far  been  insignificant. 
Seligman,  Progressive  Taxation,  p.  55. 

See  also  Taxation  of  Land,  etc.,  (English  Blue  Book)  C.D.  4750, 
p.  15. 

7.  Frankfurter  Zeitung,  May  6,  7  and  12,  1910. 

8.  Statistisches  Jahrbuch  fuer  den  preussischen  Staat,  (for  the 
year  1909),  p.  2. 

9.  The  population  of  the  United  States  in  1870  was  38,558,371. 


IO4  INCOME  TAXATION 

($30,940,000,000),10  while  that  of  the  United  States  in 
1870  was  placed  at  $24,054,814,806,"  which  was  prob- 
ably too  low,  being  based  wholly  on  assessed  valuations 
for  taxation. 

The  amount  of  the  Prussian  income  tax  (including 
the  supplementary  tax)  as  shown  by  the  budgets  of  the 
past  few  years  was,  in  round  numbers  : 

Years  Marks  Dollars 

1906  237,500,000  55,925,000 

1907  261,000,000  62,118,000 

1908  284,300,000  67,667,400 

1909  359,000,000  87,822,00012 

The  place  which  the  income  tax  fills  in  the  fiscal  sys- 
tem of  Prussia  will  be  seen  by  comparison  with  the  fol- 
lowing amounts : 

The  three  chief  sources  of  revenue  of  the  Prussian 
States  for  1909  were  (net)  : 

State  railways 415,168,620 

Other    sources 108,527,866 

523,696,486 

Taxation   423,874,100 


Total  947,570,586  marks 

It  therefore  appears  that  the  income  tax  contributed 
nearly  84.7  per  cent  of  the  Federal  taxes  and  37.8  per 
cent  of  the  three  items  above.13  Leaving  out  the  supple- 
mental tax  and  including  the  super-tax  the  amount  of  in- 
come tax  for  the  year  1909,  was  326,874,962  m.  or 


10.    Le  Marche  Financier  by  Arthur  Raffalowich,  1908-1909,  p. 
104. 

".     United  States  Census  Report,  Wealth,  1904,  p.  31. 

12.  Statistisches  Jahrbuch,  1909,  pp.  238-239. 

13.  The  total  gross  revenue  of  Prussia  for  1909  is  given  in  the 
Jahrbuch    (p.  241),  as  3,495,440,000  Marks,  but  a  comparison  with 
this  amount  would  be  futile  as  nearly  half  this  sum  is  expended  for 
the  operation  of  railroads  alone.     We  have  been  unable  to  find  3 
reliable  estimate  of  the  net  income  for  the  year  in  question. 


GERMANY — PRUSSIA  IO5 

$77,796,240.     This  sum  was  an  increase  of  56,266,610 
m.  or,  20.79  per  cent  over  the  preceding  year.14 

The  total  amount  of  income  tax  levied  in  1909  fell 
upon 

3,875,751  taxpayers  in  cities  who  paid 249,190,000  m. 

2,231,870          "          "   the  country  who  paid       77,680,000   " 


6,107,621  326,870,000    " 

The  taxable  income  amounted  to  14,030,940,000  m., 
or  $3,339,363,720,  being  an  average  of  2,653  m.  for  each 
taxpayer  residing  in  the  cities  and  1,835  m.  for  those 
living  in  the  country. 

The  increase  in  the  amount  of  income  tax  levied  since 
the  year  1892,  has  been  127.55  per  cent,  or,  on  the  basis 
of  taxes  raised  (including  the  super-tax  or  Zuschlags- 
teuer}  161.83  per  cent. 

Of  the  total  number  of  taxpayers  there  were 

Natural  persons 6,099,422 

Artificial  persons  (corporations,  etc.) 8,199 

Total 6,107,621 

The  natural  persons  who  paid  income  tax  constituted 
16.36  per  cent  of  the  total  population  of  the  Kingdom.15 

The  number  of  persons  whose  income  did  not  exceed 
900  m.  ($214)  was  17,669,438. 

The  number  of  persons  who  paid  income  tax,  together 
with  the  relatives,  etc.,  dependent  upon  them,  was 
18,850,291. 


14.  Mittheilung  aus   der  Verwaltung  der  direkten   Stettern   in 
preussischen   Staate.     Statistik  der  preussischen   Einkommensteuer- 
Veranlagung  fuer  das  Steuerjahr.  1909,  p.  1. 

15.  Compare  this  with  the   United   States,   where,   during  the 
four  years,  1867-1870,  the  average  number  who  paid  income  tax  was 
267,564,  or  about  two-thirds  of  one  per  cent  of  the  population. 


IO6  INCOME  TAXATION 

The  increase  in  the  number  of  taxpayers  from  1907 
to  1908  was  nearly  half  a  million,  while  from  1908  to 
1909  it  was  223,248. 

If  we  classify  the  natural  persons  who  paid  income 
tax  according  to  the  grades  in  which  they  were  assessed 
the  following  results  are  shown : 


Income  Group 

Number  of 

Marks 

Marks 

Dollars 

Taxpayers 

Per  cent 

900  to 

3,000 

(    214  to 

714) 

5,477,856 

89.81 

3,000    " 

6,500 

(    714    " 

1,547) 

436,501 

7.16 

6,500    " 

9,500 

(1,547    " 

2,261) 

78,070 

1.28 

9,500    " 

30,500 

(2,261    " 

7,259) 

85,158 

1.40 

30,500    " 

100,000 

(7,259    " 

23,800) 

18,019 

0.30 

over 

100,000 

3,818 

0.06 

The  above  table  shows  that  about  nine-tenths  of  the 
people  who  pay  income  taxes  are  assessed  for  incomes  of 
less  than  3,000  m.16 


16.  For  statistics  of  the  year  1907,  see  Revenues  from  the 
Prussian  Income  Tax,  by  Consul  General  Richard  Guenther,  in 
United  States  Consular  Report  No.  334,  p.  154,  July,  1908.  Also, 
Operation  of  the  income  tax  in  the  State  of  Prussia  by  Vice-Consul 
Risdorf,  United  States  Consular  Report  No.  346,  p.  27,  July,  1909. 


CHAPTER  VII. 


GERMANY. 

MINOR  GERMAN  STATES. 

The  experiences  of  the  smaller  German  States  with 
income  taxation  are  extremely  interesting;  but  anything 
like  a  full  account  of  them  would  fill  a  bulky  volume  and 
this  chapter  will  show  only  the  more  notable  peculiarities 
and  characteristics  of  each  system. 

Alsace  Lorraine.  The  task  of  gradually  transforming 
the  French  system  of  direct  taxes,  which  prevailed  in 
Alsace  Lorraine,  into  a  general  scheme  approximating 
more  nearly  that  of  the  other  German  states,  has  been  a 
long  one  and  is  not  fully  completed.  During  the  nine 
years  from  1892  to  1901,  a  series  of  laws  was  passed, 
some  of  which  were  preparatory  and  some  executory, 
having  for  their  object  the  substitution  of  the  Kapital- 
steuer  (tax  on  income  from  capital),  Lohn-und  Besold- 
ungssteuer  (wages  and  salaries  tax)  and  a  lower  Grund- 
steuer  (real  estate  tax),  for  the  "contribution  personelle 
et  mobilier,"  "patentes"  and  "I'impot  fonder"  which 
were  features  of  the  French  system.1  The  chief  laws 
affecting  the  income  tax  were  those  of  May  20,  1901, 
and  Nov.  14,  1905. 


x.    Roche.    L'impot  sur  le  Revenu,  p.  57. 


IO8  INCOME  TAXATION 

The  Kapitalsteuer  is  designed  to  reach  unearned  in- 
comes, and  the  Lohn-  und  Besoldungssteuer  applies  to 
earned  incomes.  The  latter  tax  however  is  not  of  uni- 
versal application  as  it  rests  only  on  personal  earnings 
and  receipts  not  already  taxed. 

There  is  a  fixed  rate  of  1.90  per  cent  which  is  rend- 
ered progressive  by  a  series  of  decreasing  abatements. 
In  the  lower  grades  the  tax  is  levied  on  a  certain  per- 
centage of  the  mean  of  the  two  amounts  of  income  which 
constitute  the  grade.  For  example,  in  the  fourth  grade 
of  700  m.  to  800  m.,  the  tax  consists  of  1.90  per  cent 
of  15  per  cent  of  the  mean  of  that  grade  (750  m.)  which 
would  be  2.14  marks.  This  will  appear  more  plainly  by 
the  following  extracts  from  the  table  of  rates : 


No.  of 

Income 

Percentage  of 

Amount  of 

Grade 

(Marks) 

Mean 

income  taxed 

tax  (Marks) 

1 

Under       500 

250 

10 

.47 

2 

500  to        600 

550 

10 

1.04 

3 

600    "         700 

650 

10 

1.23 

4 

700    "        800 

750 

15 

2.14 

* 

*                 * 

* 

* 

* 

10 

2,000    "      2,500 

2,250 

30 

12.82 

* 

*                  * 

* 

* 

* 

16 

6,000    "      7,000 

6,500 

60 

74.10 

* 

*                  * 

* 

* 

* 

22    20,000  "  25,000   22,500        100         427.50 

In  cases  where  income  from  all  sources  is  less  than 
700  m.  the  tax  is  not  levied.  The  taxable  unit,  sub- 
jectively, is  the  household;  but  members  of  the  house- 
hold, whose  incomes  do  not  reach  500  m.  are  not  con- 
sidered, nor  does  the  amount  help  to  swell  the  aggregate. 

Although  the  Alsatian  system  is  only  a  partial  income 
tax  the  estimated  receipts  from  it  for  1908  were  1,900,- 
000m.  ($452,200). 

Anhalt.  Since  1904  this  province  has  had  a  progres- 
sive income  tax  which  comprises  29  grades.  The  first 
and  lowest  grade  is  from  600  m.  ($142.80)  to  750  m. 


MINOR  GERMAN  STATES  109 

and  the  unit  of  taxation  is  0.15  per  cent  of  a  mark  (15 
Pfennige).  The  twenty-ninth  grade  includes  incomes  of 
11,000  m.  to  12,000  m.  for  which  the  tax  unit  is  11.25  m. 
From  this  point  for  each  1,000  m.  of  additional  income 
the  tax  is  increased  by  125  m.  up  to  59,000  m.,  and  from 
59,000  m.  to  100,000  m.  by  150  marks. 

There  is  also  a  trade  tax  and  an  investment  tax 
(Kapitalrentensteiier),  the  former  of  which  is  levied  on 
all  business  undertakings  whose  profits  amount  to  10,000 
m.  or  more  and  is  laid  at  the  rate  of  one  per  cent  up  to 
110,000  m.,  thence  rising  at  the  rate  of  one-tenth  of  one 
per  cent  for  each  10,000  m.  up  to  200,000  m.  where  it 
reaches  a  uniform  rate  of  two  per  cent.  The  investment 
tax  begins  at  5,000  m.  to  5,500  m.  with  a  tax  of  24  m. 
rising  gradually  to  a  tax  of  195  m.  on  incomes  from 
12,500  to  13,000  marks.  Incomes  above  that  sum  pay  one 
and  one-half  per  cent. 

Baden.  The  chief  peculiarity  of  the  law  in  this  pro- 
vince which  had  its  beginning  in  1884,  is  the  extent  to 
which  the  rates  are  rendered  progressive  by  means  of 
abatements  in  the  lower  portion  of  the  scale  and  increas- 
ing percentages  in  the  higher  portions. 

As  in  the  case  of  the  Swedish  law  the  lower  incomes 
are  assessed  at  much  less  than  their  true  amount.  In 
Sweden,  however,  the  full  amount  is  assessed  when  4,000 
Kr.  ($1,072)  is  reached,  while  in  Baden  the  full  income 
is  not  taxed  until  it  amounts  to  20,000  m.  ($4,760). 
Moreover  in  Sweden  there  is  a  uniform  rate  of  one  per 
cent  while  in  Baden  the  rate  is  uniform  (as  applied  to  the 
abated  amounts)  up  to  2,500  m.  and  again  from  2,500  m. 
to  25,000  m.  It  is  then  increased  by  5  per  cent  of  itself  for 
each  one  of  the  higher  grades.  For  example,  if  the  rate 


I IO  INCOME  TAXATION 

for  incomes  from  25,000  m.  to  30,000  is  2.5  per  cent  the 
rate  for  incomes  from  30,000  m.  to  40,000  m.  would  be 
2.5  per  cent  plus  five  per  cent  of  2.5  per  cent  (.125)  or 
2.625  per  cent.  The  following  example  will  perhaps 
suffice  to  explain  how  the  very  long  table  of  grades  is 
formed,  the  rate  being  2  per  cent  and  2.5  per  cent  on 
abated  portion : 

Income  Portion  taxed  Percentage  of  tax 

Marks  Marks  to  true  or  "unabated" 

income   (on  lower 
amount) 


900  to  1,000 

200  

0.44 

1,000  "   1,100 

250  

5 

1,100  "   1,200 

300  

54 

and  so  on  to 
3,000  to  3,100 

1,500.  .  

1.25 

3,100  "   3,200 

1,600  

1.32 

and  so  on  to 
10,000  to  10,500 

9,000  

2.25 

10,500  "  11,000 

9,500  

2.37 

and  so  on  to 
20.000  to  20.500 

20.000.. 

..2.5 

Incomes  under  900  m.  are  exempt,  but  such  exemp- 
tion does  not  apply  to  incomes  above  that  sum.  The 
rates  are  changed  from  year  to  year.  In  1906  and  1907 
they  ranged  from  2.4  per  cent  and  3  per  cent  (on  abated 
portion)  to  4.2  per  cent  on  incomes  of  200,000  m.  and 
upwards. 

In  the  administration  of  the  tax,  declarations  are  re- 
quired from  all  taxpayers  and  failure  to  give  the  declara- 
tion, after  due  notice,  results  in  a  forfeiture  of  the  right 
to  appeal  from  the  assessment  as  made  by  officials.  Ap- 
peals may  be  taken  in  the  first  instance  to  a  Council  of 
Assessment,  corresponding  to  the  American  board  of 
review;  second,  to  the  Taxation  Board  (Steuerdlreck- 
tion)  and,  third,  to  the  Administration  Court  (Ver- 
waltungsgerichtshof}  or  to  the  Minister  of  Finance. 


MINOR  GERMAN  STATES  III 

A  peculiar  feature  of  the  collection  of  the  tax,  which 
is  payable  quarterly,  is  that  it  is  made  by  a  demand  note, 
or  draft,  which  must  be  paid  within  a  certain  time  to  a 
local  bureau.  In  default  of  payment  within  the  period 
prescribed,  execution  issues  against  the  property  of  the 
taxpayer. 

As  to  the  financial  results,  the  yield  of  the  tax  for 
1904  was  9,308,860  m.  ($2,215,508)  ;  the  gross  amount 
of  income  assessed  was  685,354,500  m.  and  the  number 
of  income  taxpayers  335,536  or  1Y.6  per  cent  of  the 
population  (1,900,000). 

Bavaria.  While  the  Bavarian  system  is  usually 
spoken  of  as  a  partial  income  tax,  it  is  the  outgrowth  of 
attempts  at  income  taxation  w-hich  were  made  at  a  very 
early  period.  The  general  family  tax  of  1814  was  super- 
seded by  a  combined  capital  and  income  tax  in  1850, 
which,  however,  did  not  meet  the  results  expected  and, 
by  a  revision  made  in  1856,  the  law  was  framed  \vhich 
has  now  been  in  force  with  but  slight  alterations  for  more 
than  half  a  century. 

The  law  is  a  partial  income  tax  in  so  far  as  it  does  not 
apply  to  all  incomes,  but  is  designed  to  reach  those  in- 
comes, the  sources  of  which  are  not  otherwise  taxed.  It 
thus  serves  as  a  sort  of  supplemental  or  complementary 
tax.  It  has  been  sometimes  referred  to  as  an  "Earned 
Income  Tax  Act,"  but  this  is  not  strictly  correct,  as  in- 
come from  annuities  which  are  not  based  upon  personal 
services,  are  included. 

The  rates  are  very  low,  beginning  with  one-half  of 
one  per  cent  for  incomes  up  to  500  m.,  reaching  one  per 
cent  at  about  7,000  m.,  2  per  cent  at  20,000  m.  and  3  per 
cent  at  50,000  m.  and  upwards.  The  scale  up  to  14,000 


112 


INCOME  TAXATION 


m.  comprises  32  classes  or  grades  of  which  the  first  ten 
will  suffice  to  show  the  low  rate  and  slow  progression : 


Income 


Up  to     500  M.  ($119) 

500  M.  to   750 

($178) 

750 

900 

($214) 

900 

1,050 

($250) 

1,050 

1,200 

($297) 

1,200 

1,400 

($333) 

1,400 

1,600 

(i 

5381) 

1,600 

1,800 

0 

5428) 

1,800 

'  2,000 

0 

5476) 

2,000 

'  2,200 

C 

5524) 

Percentage  on 

Tax              Higher  Am't  of 

Income 

50  Pf.  (12c) 

0.1 

1  M.   (24c) 

013 

2 

(48c) 

0.22 

3 

(71c) 

0.28 

4 

(95c) 

0.33 

5 

($1.19) 

0.35 

6 

($1.43) 

0.37 

8 

($1.90) 

0.44 

10 

($2.38) 

0.5 

12 

($2.95) 

0.55 

There  is  no  exemption  at  the  foot  of  the  scale  though 
certain  persons,  such  as  domestic  servants,  widows, 
divorced  women,  orphans  under  eighteen  years  of  age, 
etc.,  are  not  subject  to  the  tax  if  their  incomes  are  less 
than  750  marks.  Incomes  are  assessed  every  four  years, 
but  there  are  ample  provisions  for  necessary  changes  in 
the  assessment,  and  deductions  may  be  made  for  ex- 
cessive expenditures  necessitated  by  sickness,  etc. 

There  is  another  tax,  known  as  Kapitalrentensteucr 
(tax  on  income  from  capital),  which  reaches  the  greater 
portion  of  all  "unearned"  income.  The  rates  are  ma- 
terially higher  than  in  the  case  of  "earned"  incomes  as 
will  be  seen  by  the  following  table : 

Income  Rate 

100  Marks 1.5  % 


70  to 

100 

400 

700 
1,000 
3,000 
over 


400 
700 
1,000 
3,000 
5,000 
5,000 


.2. 

.2.5 

.3. 

.3.5 

.3.75 

.4. 


The  results  of  these  two  taxes  for  the  three  years 
1900  to  1903  are  shown  by  the  following  statement: 

Average  am't  of 
income  assessed 

Earned $159,236,146 

Unearned  43,270,956 


Average  am't  of 

tax  collected 

$    778,626 

1,378,439 


Average  number 
persons  assessed 

629,981 

165,708 


Total $202,507,102 


$2,157,065 


795,689 


MINOR  GERMAN  STATES  113 

The  population  of  Bavaria  (census  of  1900)  was 
6,176,057,  so  that  the  proportion  of  persons  who  paid  tax 
on  earned  income  was  10.2  per  cent  and  of  those  who  paid 
on  unearned  income  2.68  per  cent  or  12.88  per  cent  for 
both. 

For  1908  the  amount  collected  from  earned  incomes 
was  $1,220,288,  and  the  number  of  taxpayers  813,677. 
The  unearned  income  tax,  or  tax  on  interest  of  capital 
yielded  $1,739,835,  which  was  paid  by  189,441  persons. 
The  total  of  the  two  taxes  was  $2,960,123,  which  was 
paid  by  1,003,118  persons  or  16.2  per  cent  of  the  popula- 
tion.2 

Brunswick  (Braunschweig).  The  law  for  this  pro- 
vince was  passed  in  1899  and  is  modeled  very  closely 
after  that  of  Prussia,  though  the  rates  are  just  half  those 
in  force  in  the  latter  country.  Perhaps  the  most  distinc- 
tive feature  of  the  system  is  the  division  of  the  tax  by 
which  three-quarters  goes  to  the  Communes  and  one- 
fourth  to  the  State.  Four  chief  sources  of  income  are 
recognized,  viz.:  1.  Capital;  2.  Real  property;  3.  Trade, 
industry  and  mining ;  and  4.  Personal  earnings ;  but  there 
is  no  differentiation  between  them  so  far  as  the  rates  are 
concerned.  The  amount  of  exemption  is  900  marks.  As 
in  Prussia,  companies  are  allowed  to  deduct  from  their 
incomes  3^  per  cent  of  the  paid  up  capital. 

There  is  also  a  supplementary  tax  (Ergaensungs- 
steuer)  which  is  an  exact  copy  of  the  Prussian  law,  ex- 
cept that  the  rate  is  only  one-half  as  much.  The  exemp- 
tion, however,  remains  the  same,  being  6,000  m.  The 

2.    United  States  Consular  Reports,  No.  346,  (July,  1909)  p.  27. 


114 


INCOME  TAXATION 


amount  of  tax  provided  by  the  Budget  of  1908  was 
3,219,000  m.  ($766,255)  or  59.08  per  cent  of  the  total 
taxes. 

Hesse.  The  law  by  which  incomes  are  taxed  in  the 
Grand  Duchy  of  Hesse  was  passed  in  1895.  The  table  of 
rates  is  a  very  long  one  and  the  progression  is  slow.  The 
first  ten  grades  are  as  follows : 


Income 


Tax  Percentage 

to  0.5 


ROD 

7e(i 

"    (  1781 

g 

1 

0.8 

7*>0 

900 

'    (  214") 

9 

1.2 

1 

Qftfl 

1  100 

'    (  2621 

11 

1.22 

1 

1  100 

1  300 

'    (  309) 

14,50 

1.32 

1.11 

1  300 

1  500 

'    (  357) 

18  50 

1.42 

1.23 

1  ^00 

1  700 

'    (  405) 

23 

1.53 

1.35 

1  700 

2  000 

'    (  476) 

28 

1.65 

1.4 

2  000 

2  300 

'   (  547) 

33  50 

1.67 

1.46 

2.300 

2.600 

f  619") 

39. 

..1.69 

1.5 

The  rate  reaches  2  per  cent  at  about  3,200  m.  and  3 
per  cent  at  9,000  m.  From  12,000  m.  each  additional 
1,000  m.  of  income  bears  an  additional  35  m.  of  tax  until 
the  sum  of  34,000  m.  is  reached.  From  that  point  each 
additional  1,000  m.  has  an  additional  tax  of  40  m.  until  at 
100,000  m.  a  percentage  of  4.91  is  levied. 

The  tax  is  collected  in  six  instalments  payable  every 
second  month  beginning  with  April. 

According  to  a  French  official  publication  there  is  a 
supplemental  property  tax  (impot  sur  la  fortune}  some- 
what similar  to  the  Ergaenzungssteuer  which  produced 
in  1904  the  sum  of  2,000,000  m.  The  yield  of  the  in- 
come tax  for  1904  was  8,877,600  m.  ($2,110,669)  upon 
a  total  income  of  445,767,000  m.  ($106,092,486).  The 
number  of  income  taxpayers  was  312,360  or  25.8  per 
cent  of  the  population.  The  Budget  for  1908  calls  for 
10,860,000  m.  ($2,584,680). 


MINOR  GERMAN  STATES  115 

Lippe-Detmold.  The  system  of  taxing  incomes  is  de- 
fined by  the  laws  of  1894  as  amended  in  1903,  1905  and 
1907.  It  is  modeled  closely  after  that  of  Prussia, 
except  that  the  rate  is  very  low  and  is  used  simply  as  a 
unit.  The  annual  budgetary  law  specifies  how  many  units 
shall  be  raised  and  the  rate  is  then  increased  by  so  much 
in  each  grade.  The  beginning  of  the  scale  is  as  follows : 

Income 
300  to   400  M. 


400 

500 

600 

700 

800 

900 

1,000 

1,100 

1,200 


500 

600 

700 

800 

900 

1,000 

1,100 

1,200 

1,300 


Tax 
Mark.  Pf. 
12  

Perc 
0.04  t 

sntage 

o  0.03 
0.04 
0.06 
0.07 
0.09 
0.11 
0.12 
0.13 
0.14 
0.15 

24   

0.06 

36  

0.07 

50   

0.08 

.75  

0.10 

1              

0.12 

1  25               .... 

0.14 

1  50  

0.15 

1  75           

0.16 

2 

..0.16 

The  rate  rises  one-fourth  of  a  mark  for  each  100  m. 
of  income  up  to  2,100  m. ;  then  the  increase  is  one-half 
of  a  mark  for  each  200  m.  up  to  6,900  m.,  from  which 
point  one  mark  is  added  to  the  rate  for  every  additional 
300  m.  of  income. 

Incomes  under  300  m.  are  exempt  for  all  persons  and 
incomes  up  to  400  m.  for  persons  60  years  of  age  or 
over.  The  law  differs  from  the  Prussian  system  in  that 
there  is  no  supplementary  tax  and  limited  liability  com- 
panies are  taxed  upon  their  whole  income. 

Mecklenburg-Schwerin  and  Mecklenburg-Strelitz. 
These  two  Grand  Duchies  have  only  partial  income  taxes 
which  are  practically  similar,  and  are  based  upon  laws  of 
1903  and  1905.  Separate  taxes  are  levied  on  agriculture, 
rent,  trades,  salaries,  pensions,  industries,  profits  of 
scientific  and  artistic  pursuits,  wages  of  labor  and  interest 
on  investments.  The  tax  on  salaries  and  occupations 


Il6  INCOME  TAXATION 

(Besoldungs-  und  Erwerbsteuer)  has  a  graduated  scale  by 
which  incomes  of  from  200  m.  to  300  m.  are  taxed  one 
mark ;  300  m.  to  400  m.  one  mark  and  a  half  and  so  on. 
The  tax  increases  one-half  mark  for  each  100  m.  until 
900  m.  of  income  is  reached.  From  900  m.  to  7,500  m. 
the  amount  of  income  is  increased  100  m.  for  each  grade, 
while  from  900  m.  to  1,500  m.  of  income  the  tax  ad- 
vances by  accretions  of  one  mark;  from  1,500  to  2,100 
m.  one  mark  and  a  half;  from  2,100  to  3,000  m.  two 
marks;  and  from  3,000  to  7,500  m.  two  and  one-half 
marks  for  each  grade.  From  7,500  m.  to  10,000  m.  the 
rate  of  tax  is  2  per  cent;  from  10,000  m.  to  20,000  m. 
2%  per  cent  and  above  20,000  m.  it  is  fixed  at  2^2  per 
cent.  The  budget  estimates  for  1908  showed  the  yield 
of  the  tax  to  be  848,100  m.  ($201,848)  for  Mecklenburg- 
Schwerin  and  155,700  m.  ($37,057)  for  Mecklenburg- 
Strelitz. 

Oldenburg,  is  a  recent  accession  to  the  income-taxing 
states,  as  it  operates  under  laws  passed  in  1906  and  1908. 
The  normal  scale  of  rates  proceeds  from  a  tax  of  one 
mark  or  one- fourth  of  one  per  cent  for  the  lowest  grade 
of  income  (400  m.  to  450  m.)  to  5  per  cent  on  incomes 
of  37,000  m.  or  more.  The  steps  of  the  progression  as 
to  incomes  are  50  m.  in  the  lower  grades  which  increase 
to  500  m.  in  the  higher  grades.  The  estimated  yield  of 
the  tax  for  the  year  1908  was  2,630,000  m.  ($625,940) 
which  was  45  per  cent  of  all  taxes  raised. 

Reuss  (Older  Line)  is  classed  among  the  states  which 
have  only  a  partial  income  tax,  as  income  from  real  estate 
within  the  principality  is  not  taxed.  While  the  law  of 
1893  describes  it  as  a  "general"  (allgemeine)  income  tax, 
its  application  is  limited  to  certain  sources  which  are 


MINOR  GERMAN  STATES  Iiy 

enumerated  in  the  law.  The  table  of  rates  furnishes 
simply  a  progressive  scale  of  units,  which  can  be  uni- 
formly multiplied  by  whatever  sum  is  necessary  to  pro- 
duce a  given  amount.  For  example,  in  1908,  the  actual 
tax  consisted  of  nine  times  the  amount  given  in  the  table 
for  each  grade.  The  scale  extends  from  3  pfennige 
(three- fourths  of  one  cent)  for  incomes  of  from  15  to 
30  mark  ($3.57  to  $7.14),  which  would  be  equivalent  to 
one-fifth  of  one  per  cent,  to  44  m.  for  incomes  of  from 
11,250  m.  to  12,000  m.,  or  about  0.3  per  cent.  From  this 
point  upward  5  m.  is  added  to  the  tax  for  each  additional 
1,000  m.  of  income.  This  operates  to  increase  the  rate 
so  slowly  that  it  would  scarcely  reach  one-half  of  one 
per  cent  at  1,000,000  marks. 

The  amount  of  the  tax  in  1908  was  584,400  m. 
($138,087)  which  constituted  81  per  cent  of  all  the  taxes 
raised.  It  is  somewhat  remarkable  that  this  Lilliputian 
state  with  a  population  of  only  70,000  and  an  area  less 
than  two-thirds  that  of  Chicago,  raises  a  larger  annual 
tax  upon  income  than  has  ever  been  attained  by  any  of 
the  great  states  of  the  American  Union,  in  time  of  peace, 
from  state  income  taxes ! 

Reuss  (Younger  Line)  raises  an  income  tax  under  a 
law  of  1898  in  substantially  the  same  manner  as  the  pre- 
ceding state,  except  that  all  income  is  assessed,  and  the 
rates  are  slightly  higher.  The  taxes  on  the  three  lowest 
grades  are  not  collected  by  the  state,  but  only  locally.  The 
scale  for  the  state  tax,  therefore,  begins  at  the  fourth 
grade  (which  is  from  550  m.  to  650  m.),  at  30  pfennige 
and  is  increased  in  the  higher  grades  (over  102,000  m.) 
one-third  of  one  per  cent  for  each  3,000  m.  of  income. 
This  state  is  notable  for  raising  a  larger  proportion  of  its 


Il8  INCOME  TAXATION 

taxes  by  the  income  tax  than  any  other  German  state,  or, 
so  far  as  I  am  aware,  any  other  country — the  proportion 
contributed  by  the  income  tax  being  84.11  per  cent. 

Saxony.  The  system  of  income  taxation  in  force  in 
Saxony  is  of  special  interest  and  importance;  first,  be- 
cause it  was  one  of  the  earliest  adopted  in  Germany  and 
therefore  served  as  a  model  for  many  other  German  pro- 
vinces; and  second,  because  the  amounts  collected  by  it 
are  relatively  very  large.  For  example,  Saxony  has  a 
population  only  two-thirds  as  large  as  that  of  Bavaria, 
but  it  collects  more  than  ten  times  as  much  income  tax. 
The  amount  collected  per  capita  in  Saxony  is  nearly  twice 
as  great  as  in  Prussia  and  nearly  double  the  average  for 
all  the  other  German  provinces. 

The  Saxon  income  tax  law  may  be  traced  back  to  the 
business  and  personal  tax  (Gewerbe-  und  Personalsteuer} 
of  1834,  which  was  an  attempt  to  levy  a  graduated  tax 
upon  incomes.  Although  the  law  was  improved  some- 
what by  the  changes  made  in  it  in  1845  and  1850,  it  was 
found  to  be  poorly  adapted  to  a  country  which  was  mak- 
ing such  rapid  progress  financially.  A  revisory  com- 
mission was  appointed  in  1868  and  the  result  of  several 
years  of  investigation  and  legislative  debate  was  the  adop- 
tion of  the  general  income  tax  law  of  1874,  which  went 
into  effect  in  1877.  The  first  levy  of  the  tax  was  con- 
sidered experimental,  but  was  so  successful  that  a  new 
law  was  passed  in  1878,  which,  while  it  has  been  amended 
frequently  in  minor  particulars,  is,  in  its  main  outlines, 
the  same  as  the  law  of  1874. 

The  table  of  rates  is  very  long,  as  there  are  120  classes 
or  grades  before  102,000  m.  of  income  are  reached.  The 
rates  are  not  percentual,  but  are  fixed  amounts  and  are 
called  the  normal  tax.  If  in  preparing  the  budget  it 


MINOR  GERMAN  STATES 


should  appear  that  these  rates  would  produce  more  tax 
than  is  needed  they  are  uniformly  reduced  by  one-tenth 
or  more.  If,  on  the  other  hand,  they  will  not  raise  a  suffi- 
cient sum  they  are  increased  by  Zuschlaege,  or  additional 
rates,  which  are  quite  independent  of  the  regular  supple- 
mentary Ergaenzungssteuer. 

The  general  effect  of  the  normal  rates  may  be  sum- 
marized as  follows : 

Incomes  under  400  m.  are  exempt. 
"          of  400  to 


500  m 
1,000 
2,800 
5,400 
10,000 
32,000 
70,000 
100,000 

.    ($      119)   pa 
($      238) 
($      666) 
($  1,285) 
($  2,380) 
($  7,616) 
($16,660) 
'     ($23,800)  ai 

y         1  rr 
10 
56 
180 
354 
1,280 
3,150 
id  upwar 

.     say 
ds  pa) 

Among  the  deductions  allowed  are  50  m.  for  each 
child  from  7  to  14  years  old  providing  the  parent's  in- 
come does  not  exceed  3,100  m.  ($738)  and  in  case  there 
are  three  or  more  dependents  in  the  family  the  deduction 
must  amount  to  at  least  one  grade.  For  taxpayers  whose 
total  income  does  not  exceed  5,800  m.  ($1,380)  an  abate- 
ment, not  to  exceed  three  grades,  may  be  made  in  the 
following  cases : 

a)  When  the  support  of  children  or  indigent  rela- 
tives involves  a  burden  of  such  a  nature  as  to  seriously 
affect  the  standard  of  living. 

b)  When  long  continued  illness  or  accidents  operate 
to  decrease  wage-earning  ability. 

The  basis  of  assessment  of  income  is : 

a)    For  land  and  house  property — 

The  rent  of  the  preceding  year,  less  deductions,  ex- 
cept income  from  agriculture  which  is  on  an  average  of 
three  years ; 


I2O  INCOME  TAXATION 

b)  For  invested  capital — 

Rate  of  interest  at  time  of  making  return  subject  to 
certain  special  provisions ; 

c)  For  wages,  salaries,  fees,  etc.— 
Amount  for  current  year ; 

d)  For  trade,  industry  and  gainful  occupation — 
Average  of  three  years. 

It  may  be  mentioned,  in  passing,  that  most  of  the 
other  German  states  follow  the  same  plan. 

There  is  a  supplemental  tax  (Ergaenzungssteuer}  at 
the  same  rate  and  in  substantially  the  same  form  as  that 
of  Prussia,  except  that  incomes  under  10,000  m.  are  ex- 
empt as  is  all  property  subject  to  the  land  tax.  For 
investments  yielding  4  per  cent,  this  supplementary  tax 
would  be  equivalent  to  a  tax  of  1^4  Per  cent  on  the 
annual  income. 

As  to  financial  results,  the  amount  collected  in  1902 
was  $8,677,756,  which  constituted  about  three-fourths  of 
all  the  direct  taxes  for  that  year.  The  amount  of  income 
assessed  was  $544,247,232.  The  whole  number  of  assess- 
ments was  1,785,471,  or  42.3  per  cent  of  the  whole  popu- 
lation and  4,719  corporate  bodies.  Of  this  number,  how- 
ever, 186,590  persons  were  exempted  on  the  ground  that 
their  incomes  did  not  exceed  400  m.  and  2,180  corpora- 
tions as  not  being  within  the  law,  so  that  the  number  of 
actual  taxpayers  was  only  26  per  cent  of  the  total  popula- 
tion (4,202,216).3 


3.  The  report  of  the  tax  office  of  the  city  of  Chemnitz  in  Saxony 
for  the  year  1908,  is  very  complete  and  exhibits  some  interesting  re- 
sults. Out  of  a  population  of  275,000  people  there  were  111,381  who 
were  assessed  for  incomes  of  more  than  400  marks.  It  thus  appears 
that  the  income  tax  was  paid  by  more  than  40  per  cent  of  the  popula- 
tion, a  larger  proportion  than  in  any  other  city  in  the  world,  so  far 


MINOR  GERMAN  STATES 


121 


The  estimated  levy  for  1908  was  51,575,000  m. 
($12,274,850),  which  is  the  largest  amount  of  income 
tax  raised  by  any  state  in  Germany,  except  Prussia. 

Saxe-Altenburg.  The  taxation  of  incomes  is  based 
upon  laws  of  1896,  1899  and  1901.  The  scale  of  rates 
rises  from  about  one-third  of  one  per  cent  on  incomes  of 
60  m.  (15)  up  to  4  per  cent  on  incomes  of  over  18,000  m. 
($4,284)  from  which  point  it  is  proportional.  The  ex- 
emption is  only  60  m.  for  "juridical  persons"  (corpora- 
tions), foreign  artisans  and  those  whose  incomes  arise 
from  landed  property  or  state  salaries  or  pensions.  For 
all  other  persons  the  exemption  includes  the  first  two 
grades,  or  up  to  450  marks. 

A  peculiarity  of  the  taxation  of  limited  liability  com- 
panies is  that  they  are  taxed  on  only  one-half  their  pro- 
fits. 


as  we  are  able  to  learn.  A  possible  explanation  is  that,  as  Chemnitz 
is  a  great  manufacturing  city,  a  very  large  proportion  of  women  and 
children  receive  incomes  of  more  than  400  m. 

The  classification  of  the  incomes  shows  that  there  were 

36,461  persons  who  had  incomes  between       400  m.  and       800  m. 

25,941 

27,068 

11,625 

3,615 

2,693 

1,238 

671 

600 

848 

247 

112 

262 

From  this  table  it  will  be  seen  that  over  one-half  of  the  popula- 
tion, or  62,402  persons,  had  incomes  of  less  than  1,100  m.  ($261.20) 
and  90  per  cent  had  incomes  of  less  than  2,500  m.  ($595). 

The  income  tax  yielded  in  1908,  $1,025,442,  which  was  an  increase 
of  over  $100,000  over  the  preceding  year  and  amounted  to  an  average 
of  nearly  ten  dollars  for  each  taxpayer.  See  Consular  Report  in 
Congressional  Record,  Vol.  45,  p.  1116. 


800 

1,100 

1,100 

1,600 

1,600 

2,500 

2,500 

3,400 

3,400 

4,800 

4,800 

6,300 

6,300 

7,800 

7,800 

10,000 

10,000 

20,000 

20,000 

30,000 

30,000 

40,000 

r 

40,000 

122  INCOME  TAXATION 

There  are  supplementary  taxes  which  take  the  form 
of  a  trade  tax  and  a  Kapitalrentensteuer,  or  investments 
tax.  These  taxes  are  levied  upon : 

1.  Persons  deriving  an  income  of  not  less  than  700 
m.  from  interest  on  capital,  and  having  a  total  income  of 
more  than  1,800  marks. 

2.  All  companies  which  are  liable  to  the  income  tax. 

3.  All  persons  with  incomes  exceeding  2,100  m.  de- 
rived from  trade  or  investments. 

The  trade  tax  is  levied  on  4  per  cent  of  the  capital  in- 
vested in  business  without  regard  to  the  profits;  the  in- 
vestments tax  is  levied  on  income  without  regard  to 
capital.  The  table  of  rates  for  these  taxes  exhibits  a 
curious  double  progression  which  is  accomplished  in  the 
following  manner : 


Income  from          Tax  when 
Trade  or  Invest-    income  below 
ment                  6,000  M. 
Marks                   Marks 

Tax  on 
income  over 
6,000  M.  and 
under  18,000  M. 
Marks 

Tax  on 
income 
over  18,000  M. 
Marks 

200  to     300 

*               * 

2 

* 

3 

* 

4 

* 

1,000  "    1,200 
*               * 

10 

* 

15 

* 

20 

* 

2,000  "    2,200 
*               * 

20 

* 

30 

* 

40 

* 

3,000  "    3,300 

*               * 

30 

if 

45 

* 

60 

* 

7,000  "    8,000 

*               * 

70 

* 

105 

* 

140 

* 

Each  additional  1,000 

10 

15 

20 

It  will  be  noticed  that  the  rates  in  the  first  column  are 
two-thirds  of  those  in  the  second  and  those  in  the  sec- 
ond three-fourths  of  those  in  the  third  and  it  is  evident 
that  the  taxation  of  each  grade  must  stand  by  itself  as 
independent  of  those  below  it. 

The  levy  made  in  1907  for  the  period  1908-1910,  pro- 
vides for  dividing  the  tax  of  each  year  into  eleven  month- 
ly payments. 


MINOR  GERMAN  STATES  123 

Saxe-Cobnrg.  Under  the  old  law  of  1874  and  the 
later  one  of  1900,  this  portion  of  the  Duchy  of  Saxe- 
Coburg-Gotha,  has  a  combination  of  the  class  tax  and 
the  income  tax.  There  is  a  progression  of  18  grades  with 
basal  rates  rising  from  one-tenth  of  one  mark  to  five 
marks.  These  rates  cannot  be  increased  more  than  16 
fold.  Persons  having  less  than  2,400  m.  of  income  are 
assessed  by  the  class  tax,  while  those  having  more  are 
subject  to  the  income  tax. 

Saxe-Gotha  is  operating  under  a  general  income  tax 
law  passed  in  1902  and  revised  in  1908.  Incomes  under 
300  m.  are  exempt  and  the  scale  of  rates  rises  from  0.02 
per  cent  for  300  m.  to  3.7  per  cent  for  10,000  m.  and 
reaches  nearly  5  per  cent  at  100,000  m.  There  is  the 
usual  supplementary  tax,  on  the  Prussian  model,  with  the 
difference  that  it  does  not  apply  to  incomes  under  5,000 
marks. 

Saxe-Meinlngen.  The  progressive  income  tax  m  force 
in  this  Duchy  was  adopted  in  1890.  It  differs  from  most 
of  the  other  states  in  being  percentual.  There  is  an  exemp- 
tion of  600  m.  from  which  point  the  rates  rise  from  0.8 
per  cent  to  4  per  cent  which  is  the  rate  for  33,000  m.  or 
more.  A  special  feature  of  the  law  is  the  provision  re- 
quiring persons  who  have  made  no  declarations  and  have 
been  assessed  by  officials  for  less  than  their  true  income, 
to  notify  the  officials  of  that  fact.  A  similar  law  is  in 
force  in  the  three  free  cities  of  Lubeck,  Hamburg  and 
Bremen.  There  is  no  supplemental  tax. 

S axe-Weimar.  The  income  tax  law  contains  no 
tariff,  but  simply  defines  taxable  income  and  leaves  the 
tariff  to  be  fixed  by  biennial  laws.  According  to  the  law 
for  1908-1910,  the  rate  begins  with  3.60  m.  for  incomes 


124  INCOME  TAXATION 

of  500  to  600  m.  (O.T2%  to  0.6%)  and  reaches  4  per 
cent  for  incomes  of  30,000  m.  and  over.  There  is  no 
supplemental  tax  and  under  the  new  law  the  amount  of 
exemptions  is  500  marks. 

Schanmberg-Lippc.  In  this  principality,  by  the  laws 
of  1901-4-5  (which  are  based  on  the  Prussian  law)  the 
rates  begin  with  4.20  m.  for  incomes  of  450  m.  to  600  m. 
(0.93%  to  0.7%)  and  reach  4  per  cent  at  100,000  m. 
For  sums  above  100,000  m.  the  rate  is  4  per  cent  on  the 
lower  amount  in  each  grade  and,  of  course,  somewhat  less 
for  the  higher  amount.  The  exemption  is  450  m.  and 
there  is  no  supplemental  tax. 

Schwarzbnrg-Rudolstadt.  Under  the  law  of  1902,  as 
amended  in  1908,  incomes  pay  a  monthly  rate  of  5  pf. 
(1^4  cent)  if  under  350  m. ;  10  pf.  for  350  m.  to  400  m. ; 
54  m.  for  1,800  to  20,000  m.,  and  0.3  per  cent  for  larger 
sums.  It  will  be  seen  that  the  total  amount  paid  in  a  year 
cannot  exceed  4  per  cent.  There  is  no  exemption  and  no 
supplemental  tax. 

Schivarzburg-Sonderhausen.  The  law  of  1894  has 
been  repeatedly  changed,  the  last  amendment  being  in 
1904.  The  rates  are  very  low  beginning  with  one-third 
of  one  per  cent  for  incomes  of  300  m.  to  400  m.  and  be- 
coming proportional  at  3  per  cent  for  incomes  exceeding 
4,800  m.  The  exemption  is  300  m.  and  there  is  no  sup- 
plemental tax. 

Waldeck.  The  income  tax  feature  of  the  present  law 
dates  from  1893.  The  lower  classes  of  incomes  are  sub- 
ject to  a  class  tax  which  is  laid  with  reference  to  the  oc- 


MINOR  GERMAN  STATES  125 

cupation  of  the  taxpayer,  while  the  larger  incomes  (all 
over  900  m.)  are  subject  to  the  general  income  tax.  The 
rates  represent  the  amounts  payable  monthly  in  the  first 
three  classes  and  range  from  10  pf.  to  5.50  m.  Incomes 
of  3,000  m.  and  over,  which  constitute  the  fourth  class, 
are  subject  to  a  super-tax  of  3  per  cent,  annually  on  all 
excess  above  3,000  marks. 

Wiierttemberg  is  third  in  importance  among  the  Ger- 
man states  in  the  amount  of  income  tax  raised,  unless  the 
free  city  of  Hamburg  is  counted  as  a  state,  in  which  case 
it  would  be  fourth.  In  order  to  understand  the  relation 
of  the  income  tax  to  the  general  taxing  system  it  would 
be  necessary  to  have  a  clear  idea  of  the  somewhat  com- 
plicated features  of  the  real  estate  tax,  house  tax,  in- 
dustrial tax  and  tax  upon  incomes  from  capital,  wages, 
and  occupations  out  of  which  it  has  grown.  It  was  only 
after  several  years  of  agitation  and  debate  that  the  two 
chambers  of  the  Kingdom  finally  agreed  upon  the  present 
income  tax  law  which  was  passed  August  8,  1903,  and 
went  into  effect  April  1,  1905. 

The  table  of  rates  comprises  96  grades,  beginning 
with  a  rate  of  2  m.  (0.4%  to  0.3%)  on  incomes  of  500 
m.  to  650  m.  and  increasing  slowly  to  5  per  cent  for  in- 
comes of  200,000  m.  and  over.  For  the  first  thirty  grades 
the  incomes  increase  by  steps  of  150  m.  while  the 
amounts  of  tax  are  successively  2-3-4-5-7-9-11-13-16-18- 
21-25-28-32-36-40-44-49-53-59-64-69-75-81-87-93  -  100- 
107-114  and  121  m.,  which  last  amount  is  the  rate  for  the 
grade  of  income  comprising  4,850  m.  to  5,000  m.  In  the 
next  ten  steps  the  income  increases  at  the  rate  of  200  m. 


126  INCOME  TAXATION 

a  step,  and  the  amounts  of  tax  are  respectively  128-135- 
143-151-159-168-176-185-194  and  204  m.  The  last 
amount  constitutes  a  3  per  cent  rate  on  the  lower  amount 
in  the  grade  of  6,800  m.  to  7,000  m.  The  4  per  cent  rate 
is  reached  at  30,000  m. ;  4^  per  cent  at  100,000  m. ;  4^4 
per  cent  at  150,000  and  5  per  cent  at  200,000  m.  There 
is  a  general  exemption  of  incomes  under  500  m.  ($119) 
which  does  not  apply  to  non-residents  and  cannot  be  con- 
sidered as  a  deduction  or  abatement  for  incomes  of  a 
larger  amount.  There  are  also  a  large  number  of  special 
classes  of  incomes  exempted  by  reason  of  their  military, 
educational,  religious,  benevolent,  charitable  or  public 
uses.4 

Special  abatements,  which  are  within  the  discretion  of 
the  Assessment  Commission  (Schaetzungskommission), 
may  be  allowed  for  : 

a)  Education  and  support  of  children. 

b)  Support  of  indigent  relatives. 

c)  Active  service  in  the  army  and  navy. 

d)  Protracted  illness. 

e)  Severe  accidents  or  financial  reverses. 

But  such  abatements  are  allowable  only  to  persons 
whose  annual  income  is  less  than  5,000  m.  ($1,190)  and 
must  not  amount  to  a  reduction  of  more  than  three 
grades.  There  is  no  provision  for  collection  at  the  source 
nor  for  differentiation  between  earned  and  unearned  in- 
come, except  such  as  results  from  the  "Kapitalsteuer- 
gesets,"  sometimes  called  the  "unearned  income  tax  act," 


*.  For  example,  a  taxpayer  having  an  income  of  less  than  2,000 
m.  is  entitled  to  an  abatement  of  one  grade  for  one  or  two  children 
under  fifteen  years  of  age  and  of  two  grades  for  three  or  more.  If 
his  income  is  between  2,000  and  3,200  m.  he  is  allowed  one  grade 
for  three  or  more  children. 


MINOR  GERMAN  STATES  127 

which  applies  specifically  to  interest  on  capital,  dividends 
of  companies,  annuities,  etc.,  and  is  additional  to  the  in- 
come tax,  the  industry  tax  and  also  to  the  supplementary 
tax,  in  case  the  same  is  voted  by  the  legislature.  It  thus 
appears  that  a  manufacturer  or  trader  may  be  called  upon 
to  pay : 

1.)  The  general  income  tax  (Die  allgemeine  Ein- 
kommensteuer)  as  explained  above. 

2.)  The  tax  on  capital  (Kapitalsteuer)  of  2  per  cent 
of  profits  from  investments. 

3.)  The  land  tax  (Grundsteuer) ,  of  2  per  cent  of 
ground  rental  value  of  his  premises. 

4.)  The  house  tax  (Gebaeudesteucr),  of  3  per  cent 
of  market  value  of  the  property. 

5.)  The  trade  or  industrial  tax  (Gewerbestcuer), 
fixed  at  2  per  cent  of  the  actual  yield  of  the  capital  in- 
vested (but  not  income  from  personal  services). 

6.)     The  ordinary  local  or  communal  taxes. 

As  a  fiscal  measure  the  income  tax  in  Wuerttemberg 
is  considered  a  success.  In  the  first  year  of  its  operation 
it  yielded  two-thirds  of  all  the  direct  taxes.  The  budget 
of  1908  called  for  18,000,100  m.  ($4,284,024)  and,  for 
the  levy  of  1909-10,  it  is  proposed  to  raise  the  rates  about 
12  per  cent. 

Bremen,  Hamburg,  Lubeck.  While  the  systems  of 
income  taxation  in  these  free  Hanseatic  cities  belong 
rather  in  the  domain  of  municipal  than  of  state  taxation, 
they  are  to  some  extent  a  combination  of  the  two,  and  it 
would  require  a  very  careful  analysis  to  draw  the  line 
clearly  between  them. 

The  income  tax  laws  of  Bremen  were  passed  in  1902 
and  1905.  The  rates  are  fixed  yearly  at  a  certain  multiple 


128  INCOME  TAXATION 

of  the  unit  or  basal  rates,  and  range  from  1  m.  ( 
to  O.lfo)  for  incomes  of  900  m.  to  1,000  m.,  to  1.20  per 
cent  for  incomes  of  over  200,000  m.  These  rates  are  re- 
duced 50  per  cent  for  the  suburban  districts.  The  tax  in 
1908  amounted  to  7  units,  or  sevenfold  the  basal  rates. 

The  Hamburg  income  tax  law  dates  from  1903  and 
is  notable  in  that  the  amount  of  tax  collected  by  it  per 
capita  is  much  higher  than  in  any  of  the  other  German 
states,  being,  in  1908,  43.98  m.  ($10.50).  It  should  be 
remembered,  however,  that  in  this,  as  in  the  other  free 
cities,  the  amount  includes  local  and  state  taxes.  There 
is  a  unital  rate  which  begins  with  one  mark  or  one-ninth 
of  one  per  cent  for  incomes  of  900  m.  to  1,000  m.,  reaches 
one  per  cent  at  30,000  m.  and  1.20  per  cent  at  200,000  m. 
The  usual  tax  is  6  times  these  rates.  The  budget  for  1908 
provided  for  a  levy  of  38,481,000  m.  ($9,158,478).  It 
was  estimated  in  1  900  that  about  one- fourth  of  the  popu- 
lation had  incomes  of  less  than  900  m.  and  that  the  aver- 
age income  of  such  persons  was  500  marks.  Lubeck 
has  had  an  income  tax  since  1889.  The  rates  are 
progressive  and  percentual  rising  from  two-thirds  of 
one-  per  cent  for  600  m.  to  8  per  cent  for  40,000 
m.  and  over.  In  this  city,  as  also  in  Hamburg,  there  is 
no  penalty  for  failing  to  make  a  declaration  of  income. 


SUMMARY. 

The  following  table  will  serve  to  show  the  relative 
importance  of  the  income  taxes  mentioned  in  this 
chapter : 


MINOR  GERMAN  STATES 


129 


Kingdom, 
Duchy,  etc. 

Alsace-Lorraine  

Income 
Tax  1908 
Marks 
1,900,000 
2,415,000 
15,600,500 
4,930,000 
3,219,600 
10,860,000 
720,000 
848,100 
155,700 
2,630,000 
584,400 
1,100,000 
51,575,000 
1,278,000 
1,645,000 
1,330,000 
3,104,000 
235,000! 
461,500 
504,900 
252,600 
18,000,100 
10,677,000 
38,481,000 
2,910,000 

Percent 
of  total 
taxi 
5.42 
63.93 
35.90 
5.30 
59.08 
54.37 
60.14 
19.65 
27.10 
45. 
80.96 
84.11 
73.31 
61.78 
71.30 
65.44 
80.96 
72.62 
62.52 
70.59 
61.62 
43.56 
59.66 
57.56 
60.96 

Income 
per  c; 
Marks  E 
1.05 
7.36 
7.76 
0.76 
6.63 
8.98 
4.95 
1.36 
1.50 
5.99 
7.77 
7.61 
11.44 
6.19 
6.79 
4.95 
8. 
5.22 
4.76 
5.93 
4.27 
7.82 
40.53 
43.98 
27.49 

Tax 
ipita 
lol.  Cts. 
.25 
1.74 
1.84 
.18 
1.58 
2.14 
1.18 
.42 
.36 
1.42 
1.85 
1.81 
2.72 
1.47 
1.62 
1.18 
1.90 
1.25 
1.13 
1.41 
1.02 
1.86 
9.66 
10.47 
6.5-1 

Anhalt  

Baden    

Bavaria   

Brunswick    

Lippe    

Mecklenburg-Schwerin   

Mecklenburg-Strelitz   

Oldenburg  

Reuss    Older  Line  

Reuss    Younger  Line  

Saxony                   

Saxe-Altenburg            

Saxe-Coburg  Gotha     

Saxe-Meiningen    

Schaumburg-  Lippe    

Schwartzburg-Rudolstadt   ... 
Schwartzburg-Sondershausen  . 
W^aldeck   

W^uerttemberg    

Hamburg         

Lubeck    . 

It  should  be  borne  in  mind  that  the  amounts  of  in- 
come tax  given  in  the  foregoing  table  are  only  approxi- 
mate and  subject  to  deductions  for  cost  of  collection. 

The  average  per  capita  tax  for  the  twenty-five  states 
is  $2.28,  which  is  more  than  double  the  average  amount 
in  countries  having  income  taxes  generally.  Of  the 
twenty-five  states  mentioned,  there  are  five  which  have 
only  partial  income  taxes.  These  are  Bavaria,  Alsace- 
Lorraine,  the  Mecklenburg  Grand-duchies  and  Reuss, 
Older  Line.5 


5.  The  principal  sources  of  information  which  have  been  relied 
on  in  preparing  the  foregoing  chapter  are  Handwoerterbuch  der 
Staatswissenschaften,  dritte  Auflage,  Band  III  (1909)  ;  Regime  Fiscal 
des  Valeurs  Mobilieres  en  Europe,  (1901)  ;  Reports  from  his  Maj- 
esty's Representatives  Abroad  respecting  Graduated  Income  Taxes 
in  Foreign  States,  (1905)  ;  Seligman,  Progressive  Taxation  in  Theory 
and  Practice,  2d  Ed. 


CHAPTER  VIII. 


GREECE,  HAWAII,  HOLLAND,  HUNGARY, 
INDIA,  ITALY. 


GREECE. 

It  has  seemed  worth  while  to  make  mention  of  this 
country  not  because  it  has  had  any  experiences  with  in- 
come taxes  in  modern  times,1  but  because  the  principles 
of  income  taxation  are  supposed  to  have  originated  with 
the  Athenians.  The  statement  is  often  made  that  the  in- 
come tax  was  first  used  by  the  Greeks  in  the  time  of 
Solon  (596  B.  C).  This  assertion  is  apparently  based 
upon  a  much  quoted  passage  in  Montesquieu's  Spirit  of 
the  Laws  ;2  but  the  tax  there  referred  to  was  rather  in  the 
nature  of  a  "produce  tax,"  such  as  was  levied  in  early 


1.  The  only  levies  which  resemble  income  taxes  are  the  five  per 
cent  tax  on  the  net  profits  of  joint  stock  companies,  the  patent cs  or 
business  licenses  and  the  special  graded  salary  tax  on  the  employees 
of  various  corporations,  which  last  is  as  follows : 

On  salaries  of     500  to    3,000  drachmas  the  tax  is  2% 

"        "    3,001    "     5,000  "          "       "      "  3% 

"    5,001    "     7,000  "  "       "      "  4% 

"    7,001    "  12,000  "       "      "  5% 

above         12,000  "      "     "  6% 

(The  Grecian  drachma  is  equivalent  to  the  French  franc,  or 
19.3  cents.) 

2.  "On  avoit  divise  a  Athenes  les  citoyens  en  quatre  classes. 
Ceux  qui  retiroient  de  leurs  biens  cinq  cents  mesures  de  fruits  liquids 
ou  sees  payoietit  au  public  un  talent;  ceux  qui  en  retiroient  trois 


GREECE 

Colonial  days  in  this  country.  So  far  from  its  being  the 
first  income  tax  there  is  reason  to  believe  that  there  were 
levied,  in  Egypt,  a  thousand  years  earlier,  certain  taxes 
which  corresponded  more  closely  to  the  modern  income 
tax  than  did  the  law  of  Solon's  time.  Among  the  duties 
of  the  Grand  Vizier  of  Egypt  in  1580  B.  C.  the  collection 
of  income  taxes  was  mentioned.3  Certain  public  officials, 
as  for  example  the  judges,  were  required  to  pay  a  per- 
centage of  their  incomes  to  the  state.*  According  to 
Aristotle  a  general  income  tax  upon  all  employments  was 
levied  by  King  Tachus  in  Egypt  at  the  instance  of 
Chabrias.5 

It  cannot  be  denied,  however,  that  the  Greeks  under- 
stood the  principles  of  the  progressive  income  tax  and 
that  laws  were  formulated  by  them  with  a  view  to  the 
collection  of  such  taxes.  As  early  as  380  B.  C.  the  people 
were  divided  into  four  classes.  The  rate  of  taxation  was 
one  per  cent  on  the  lowest  class,  composed  of  all  those 
with  an  income  below  25  minas  (about  $427) ;  five  per 
cent  on  the  second  class,  with  incomes  from  25  to  50 
minas ;  ten  per  cent  on  the  third  class,  with  incomes  from 
50  to  100  minas ;  and  twenty  per  cent  on  the  fourth  class, 


cents  mesures  devoient  un  demi-talent ;  ceux  qui  avoient  deux  cents 
mesures  paypient  dix  mines  ou  le  sixieme  partie  d'un  talent;  ceux 
de  la  quatrieme  classe  ne  donnoient  rien."  At  Athens  the  citizens 
were  divided  into  four  classes.  Those  who  realized  from  their 
estates  500  measures  of  dry  or  liquid  fruit  paid  a  tax  of  one  talent; 
those  who  realized  300  measures  paid  half  a  talent;  those  who  had 
200  measures  paid  10  minas  or  one  sixth  of  a  talent,  and  those  of  the 
fourth  class  paid  nothing.  Montesquieu,  De  1'Esprit  des  Lois,  Book 
XIII,  Ch.  VII.  See  also  Boeckh,  Public  Economy  of  the  Athenians 
Book  IV,  Ch.  5.  pp.  639-665.  (Am.  Ed.) 

3.  Breasted.     Ancient  Records,  Vol.  2,  par.  706. 

4.  Breasted.     Ancient   Records,   Vol.   2,  par.   716,    and   Vol.   5, 
page  31,  Note. 

5.  Bancroft.    Ancient  Greece,  p.  143. 


132  INCOME  TAXATION 

with  incomes  above  100  minas.6  But  even  at  that  early 
day  the  tax  was  looked  upon  as  a  sort  of  emergency,  or 
war  tax,  and  there  is  some  doubt  whether  it  was  actually 
put  into  operation.7 


HAWAII. 

The  system  of  income  taxation  which  has  been  in 
force  in  Hawaii  since  1901,  is  of  special  interest,  not 
only  because  the  territory  is  within  the  jurisdiction  of 
the  United  States,  but  also  for  the  reason  that  the 
law  is  modeled  closely  after  the  United  States  Law 
of  1894,  which  was  held  to  be  unconstitutional. 

The  Hawaiian  law  provides  for  a  tax  of  two  per 
cent  upon  all  incomes,  including  those  of  corpora- 
tions, and  would  be  a  strictly  proportional  tax  were  it 
not  for  the  exemption  of  $1,500,8  which  applies  to  all 
incomes  regardless  of  the  amount.  The  progressive 
effect  which  results  from  the  exemption  is  shown  by 
the  fact  that  a  taxpayer  with  a  total  income  of  $3,000 
would  pay  one  per  cent  of  his  whole  income,  while 
the  recipient  of  $100,000  would  pay  a  tax  of  1.97  per 
cent.  Corporations  are  taxed  on  the  net  profit  or  in- 
come above  actual  operating  and  business  expenses. 
As  compared  with  the  corporation  tax  law  of  the 
United  States,  the  following  provision  for  computing 
the  net  income  of  corporations  will  be  of  interest : 


6.  Seligman.     Progressive  Taxation,  etc.,  p.  12,  citing  Rodbertus 
Untersuchungen    zur   Geschichte    der   roemischen  Tributsteuer    seit 
Augustus  in  Hildebrand's  Jahrbuecher  fuer  National-Oekonomie  und 
Statistik.     Band  VIII,  1867.  pp.  453,  et  seq. 

7.  Diet,  de  1'liconomie  Politique,  Revenu. 

8.  The  exemption  was  $1,000  until  changed  by  Act  64,  Laws  of 
1909,  to  the  above  mentioned  sum. 


HAWAII  133 

The  net  profits  or  income  of  all  corporations  shall  in- 
clude the  amount  paid  or  payable  to,  or  distributed  or  dis- 
tributable, among1,  the  shareholders  from  any  fund,  or  used 
for  construction,  enlargement  of  plant,  or  any  other  ex- 
penditure or  investment,  paid  from  the  net  profits,  made  or 
acquired  by  said  corporation,  during  the  taxation  period 
next  preceding,  whether  that  period  be  the  first  taxation 
period  or  any  succeeding  period.9 

Persons  who  receive  dividends  upon  stock  in  cor- 
porations which  have  paid  the  income  tax,  are  not 
required  to  include  such  dividends  in  their  returns  of 
income.  All  persons  and  corporations  are  required 
to  make  returns  and  if  they  fail,  they  may  be  sum- 
moned by  the  district  assessor  to  appear  before  him 
and  produce  the  books  of  accounts  relating  to  their 
business.10  Appeals  may  be  taken  in  the  same  man- 
ner as  from  property  tax  assessments ;  but  notice  of 
appeal  must  be  given,  stating  the  grounds  of  the  ap- 
peal, and  making  a  deposit  of  the  costs. 

Act  33,  Laws  of  1909,  provides  that  the  amounts  col- 
lected by  the  income  tax  shall  be  used  as  follows : 

Three  fourths  of  said  fund  is  hereby  appropriated  for 
and  shall  be  used  for  the  encouragement  of  immigration  to 
the  Territory  of  Hawaii,  in  aid  and  development  of  the 
agricultural  resources  and  conditions,  *  *  *  and  one 
fourth  of  said  fund  is  hereby  appropriated  for  and  shall  be 
used  for  the  development,  conservation,  improvement  and 
utilization  of  the  natural  resources  of  the  Territory. 

A  peculiar  feature  of  the  Hawaiian  taxing  system  is 
the  provision  for  County  income  tax  which  is  found  in 
Chapter  26  of  Act  31,  Laws  of  1903. 


9.  Section  1281  Revised  Laws  of  Hawaii,  as  amended  by  Sec- 
tion 4,  Act  87,  Laws  of  the  Territory  of  Hawaii,  Session  of  1905, 
p.  195. 

10.  Revised  Laws  of  Hawaii,  Section  1278,  et  scq. 


134  INCOME  TAXATION 

The  tax  is  levied  for  "annual  County  revenue  pur- 
poses" at  the  rate  of  2%  on  all  "gains,  profits  and  income 
over  eighteen  hundred  dollars"  and  full  provision  is 
made  for  the  assessment  and  levy  of  the  tax  by  County 
officials.  All  persons  having  incomes  of  more  than  $600 
a  year  and  all  corporations,  are  required  to  make  returns 
of  their  incomes.  The  Board  of  Supervisors  is  au- 
thorized to  add  two  hundred  per  cent  to  the  just  valuation 
of  the  income  of  any  taxpayer  who  has  made  a  false  or 
fraudulent  return. 

The  total  revenue  of  the  Territory  of  Hawaii  for  the 
fiscal  year  ending  June  30,  1908,  was  $2,669,748.32,  and 
of  this  sum  $1,880,847.83,  or  70%,  was  raised  by  taxa- 
tion. The  place  which  the  income  tax  fills  in  the  budget 
may  be  seen  by  the  following  summary  of  the  principal 
items  of  State  taxation  for  the  year  1908  :" 

Real  property  tax $640,051 


Personal 

Income 

School 

Road 

Poll 

Carriage 

Inheritance 

Insurance 


635,265 
266,241 
97,846 
97,842 
49,144 
28,741 
21,430 
16,116 


Penalties  14,939 

Sundry  minor  taxes 13,232 

It  thus  appears  that  the  income  tax  yielded  nearly  10 
per  cent  of  the  total  revenue  and  14.15  per  cent  of  the 
amount  raised  by  taxation  and  tax  penalties.  Of  the 
penalties  mentioned  above,  the  amount  collected  in  con- 
nection with  the  income  tax  was  $2,758.  The  cost  of 
collecting  all  taxes,  including  income  tax,  was  3.64  per 
cent. 


11 .  Report  of  the  Governor  of  Hawaii,  Sept.  19,  1908,  in  Re- 
ports of  the  Department  of  the  Interior  of  the  United  States,  Vol. 
II,  pp.  342-344. 


HOLLAND 


135 


The  yield  of  the  income  tax  has  been  as  follows  : 

1902 $286,630.20 

1903 202,526.44 

1904 170,511.71 

1905 155,978.87 

1906 391,366.65 

1907 187,687.91 

1908 266,241.74 

The  number  of  income  taxpayers  is  not  disclosed  by 
the  statistics,  but  as  more  than  half  the  population 
(95,000  out  of  170,000)  are  orientals,  it  is  probable  that 
the  number  is  relatively  small. 

In  1908,  a  legislative  committee  was  appointed  to  in- 
vestigate the  income  tax  law  with  a  view  to  its  revision, 
but  they  did  not  recommend  any  radical  changes. 


HOLLAND. 

The  system  of  income  taxation  which  is  in  force  in 
the  Netherlands  is  deserving  of  special  study  for  the  rea- 
son that  it  is  based  largely  upon  scientific  theories  and  in- 
vestigations. It  has  often  happened  in  other  countries, 
and  particularly  in  the  United  States,  that  income  tax 
laws  have  been  formulated  by  men  who  had  little  knowl- 
edge of  the  subject;  but  the  Dutch  law  was  drawn  by  a 
man  who  presented  the  unusual  combination  of  a  success- 
ful man  of  affairs,  a  noted  financier  and  a  political 
economist  of  international  reputation.  In  1891  and  1892, 
the  late  Dr.  N.  G.  Pierson,12  while  Minister  of  Finance 


12.  Nicholas  Gerard  Pierson  was  born  in  Holland  in  1839.  After 
a  trip  to  the  United  States  he  published,  in  1859,  a  book  on  the 
American  Banking  System.  He  was  made  a  director  in  the  Bank 
of  the  Netherlands  in  1868,  and  about  that  time  he  published  a  large 
book  on  Dutch  Colonial  Policy.  In  1877  he  was  called  to  the  chair 
of  economics  in  the  University  of  Amsterdam.  This  position  he 
held  until  1885,  when  he  was  made  President  of  the  Bank  of  the 
Netherlands.  He  became  Minister  of  Finance  in  1891  and  Prime 


136  INCOME  TAXATION 

for  the  Netherlands,  prepared  two  laws  which  constitute 
the  present  system.  The  first  was  the  Vernioegensbelast- 
ing,  or  property  tax,  which  was  passed  September  27, 
1892,  and  the  second  the  Belasting  op  bedrijfs  en  andere 
inkomsten  (tax  on  incomes  from  business,  etc.),  or  busi- 
ness tax,  which  went  into  effect  October  2,  1893. 

The  objects  sought  to  be  obtained  by  these  laws  were : 

1.  To  tax  incomes    derived    from    industries  and 
salaries,  that  is  from  personal  exertion,  at  a  much  lower 
rate  than  income  received  from  investments — say,  in  the 
ratio  of  about  3  to  5. 

2.  To  adopt  a  system  of  graduation  which  should  be 
effected  in  two  ways  : 

a)  By  deducting  from  every  income  a  considerable 
exemption  which  has  the  effect  to  produce  a  strong  pro- 
gression in  the  lower  grades  and  a  weak  one  in  the  higher, 

b)  By  strengthening    the    progression  where  it  be- 
comes too  slight,  by  increased  rates  for  higher  incomes. 

It  is  unfortunate  that  the  plan  devised  is  quite  com- 
plicated and  to  compass  any  adequate  explanation  of  it 
within  a  brief  space  is  a  difficult  task.  Under  these  cir- 
cumstances we  cannot  perhaps  do  better  than  to  quote  an 
explanation  which  Dr.  Pierson  himself  has  given.13 


Minister  in  1897,  which  latter  position  he  held  for  four  years.  He 
was  a  voluminous  writer  on  political  economy  and  banking,  his  most 
important  work  being  his  Leerboek  der  Stathuishoudkunde,  the  first 
volume  of  which  has  been  translated  into  English  under  the  title 
"Principles  of  Economics."  See  The  Economic  Bulletin,  Vol.  Ill, 
No.  1  (March,  1910)  p.  10. 

13.  The  Income  Tax  in  Holland.  Economic  Journal,  Vol.  17, 
Sept.  1907,  p.  417.  See  also  Cohen-Stuart,  A.  J.  Progressive  Taxa- 
tion in  Holland  in  Economic  Journal,  Vol.  VIII  (1898),  pp.  325-332, 
and  Consular  Report  in  Congressional  Record  Vol.  45,  p.  1112. 


HOLLAND 


137 


We  have  in  Holland  not  one  single  income-tax;  we 
have  two  taxes  which  combined  are  intended  to  tax  the 
whole  income.  The  first  is  the  Property  Tax;  it  taxes  the 
value  of  all  the  property  that  a  person  possesses  beyond  a 
certain  amount  (fl.  10,000)  ($4,020)  at  a  certain  rate — i^ 
florins  for  every  1,000  up  to  200,000  florins;  the  remainder 
is  taxed  at  the  rate  of  2  florins  in  every  1,000.  It  follows 
that  the  owner  of  property  worth 


Pays                         Per  Mille 

50,000  fl. 

($      20,100) 

50      fl.     ($      20.10)   or  1.000  =0.1     % 

100.000    " 

(        40,200) 

112^' 

(        45.22) 

1.125  =0.11   % 

200,000    " 

(        80,400) 

237^' 

(        95.45) 

1.1875=0.118% 

400,000    " 

(      160,000) 

637^' 

(      256.27) 

1,5937=0.159% 

1,000,000    " 
o  rw»  (\c\c\     " 

(      402,000) 

(     A    CO/I    (\fif\\ 

1,837^2  ' 

OQ   O9>rl/    ' 

(      738.67) 

(     Q   KOO  Rrf\ 

1.8375=0.183% 

-f   f\QRi  —  (\  mof/_ 

The  second  tax  is  called  the  Tax  on  industrial  and  other 
revenues,  to  which  all  incomes  are  subject  which  do  not  fall 
under  the  property  tax.  In  the  case  of  a  mixed  income — 
income  from  property  used  by  its  owner  for  commercial  or 
industrial  purposes — the  law  assumes  that  4  per  cent  of 
such  capital  has  been  taxed  already  by  the  property  tax,  so 
that  only  the  remainder  falls  under  the  other  tax.  To  put  it 
briefly :  let  the  income  which  a  man  draws  from  his  business 
be  10  per  cent  of  the  capital  invested ;  then  the  tax  on  in- 
dustrial and  other  revenues  will  only  take  account  of  so 
much  of  these  10  per  cent  as  remains  after  a  deduction  of 
4  per  cent,  which  means  that  the  industrial  income  will  be 
taxed  as  if  it  amounted  only  to  6  per  cent  of  the  capital 
invested. 

Both  taxes  are  graduated,  and  the  graduation  has  been 
arranged  in  such  a  manner  that  industrial  incomes  are  taxed 
at  a  higher  rate  when  the  recipients  are  also  owners  of 
property.  A  man  for  instance,  receiving  an  annual  salary 
of  10,000  florins,  will  pay  more  if  he  is  also  a  capitalist  than 
he  will  pay  if  he  has  no  other  income  besides  these  10,000 
florins.  It  is  unnecessary  to  dwell  on  the  rather  complicated 
provisions  which  have  been  framed  for  this  purpose,  for  one 
of  the  chief  motives,  which  led  the  Government  to  make  the 
proposal  I  shall  presently  explain,  was  to  simplify  this  part 
of  the  legislation.  It  is  extremely  difficult  to  bring  two 
graduated  taxes,  each  of  them  taxing  only  a  part  of  the  in- 
come, so  in  harmony  with  each  other  that  their  united  work- 


138  INCOME  TAXATION 

ing  is  the  same  as  if  they  formed  only  one  tax.  The  object, 
indeed,  has  been  attained  by  the  Dutch  law,  but  it  must  be 
acknowledged  that  this  could  only  be  done  by  reducing  the 
graduation  (practically  speaking,  for  there  are  separate 
scales  for  the  minor  incomes)  to  two  stages.  In  the  prop- 
erty tax  there  is  no  higher  rate  of  taxation  above  the  2  florins 
for  every  1,000;  this  rate  is  applied  to  all  property  exceed- 
ing 200,000  florins,  however  large  the  exceeding  portion 
may  be.  In  the  tax  on  industrial  incomes  the  same  principle 
has  necessarily  been  adopted.  Of  course,  it  would  have 
been  mathematically  feasible  to  increase  the  number  of 
stages  indefinitely,  but  then  the  law  would  have  been  en- 
cumbered with  further  complications  which  would  have 
rendered  it  a  mystery  to  the  ordinary  reader. 

The  property  tax  is  levied  according  to  the  value  of 
the  property  at  the  commencement  of  the  fiscal  year  and 
the  tax  on  incomes  in  accordance  with  the  probable  in- 
come during  the  current  fiscal  year.  Incomes  for  tempor- 
ary work  alone  are  brought  under  the  income  of  the  fiscal 
year  following  that  in  which  they  are  made. 

In  computing  business  incomes  the  net  product  of  an- 
nual income  is  taxed  in  so  far  as  it  consists  of : 

1.  Profits,  gains,  earnings  and  emoluments; 

2.  Temporary  allowances,  half-pay  allowances,  pen- 
sions, annuities,  grants  due,  expenses  allowed  for  board 
and  lodging  and  allowances  due  and  to  become  due  from 
non-residents  who  are  not  assessable. 

In  calculating  the  net  amount  of  profits  and  losses 
deductions  may  be  made  as  follows : 

a)  Interest  from  capital  employed  in  business,  at  4 
per  cent  unless  any  other  rate  is  mentioned,  in  so  far  as 
the  revenue  from  such  capital  is  not  part  of  the  pro- 
fessional income. 


HOLLAND 


*39 


b)  Cost  of  maintaining  and  repairing  objects  ex- 
clusively used  for  the  purpose  of  trade  or  business. 

c)  Salaries,    wages,    rents    of    warehouses,    stores, 
offices  and  other  premises,  with  all  necessary  expenses  of 
carrying  on  the  trade  or  business  from  which  the  income 
is  derived. 

f)  Debts  and  uncollectable  credits. 

g)  Wear  and  tear  and  general  depreciation. 

h)  Insurance  premiums  and  payments  made  to 
charitable  and  benevolent  funds  and  to  pensions  for 
families  of  employees  and  shares  and  profits  granted  to 
them. 

In  reaching  the  basis  of  the  property  tax  (Ver- 
moegensbelasting}  the  taxpayer  is  charged  with  all  of  his 
own  and  his  wife's  property  and  four  fifths  of  that  of 
which  he  has  the  use;  but  this  does  not  include  furniture, 
clothes,  works  of  art,  jewels,  life  insurance  policies,  and 
such  other  personal  belongings  as  are  not  used  com- 
mercially. 

As  to  the  valuation  of  real  estate,  there  is  the  some- 
what curious  provision  that  the  owner  may  usually  choose 
which  of  two  methods  he  will  adopt.  He  may  elect  to 
have  it  valued — 

1.  At  twenty  times  the  assessed  annual  value  as  de- 
termined by  the  law  for  taxing  land  and  buildings,  with 
certain    deductions    for    State    ground  rents,  "centimes 
additionels"  and  amounts  of  receipts  from  mortgages  and 
other  rents ;  or 

2.  At  the  estimated  selling  value.     He  must,  how- 
ever, apply  the  same  method  to  all  of  his  real  estate ;  and 
building  ground  (exclusive  of  gardens  and  parks)  must 


140 


INCOME  TAXATION 


always  be  assessed  at  its  market  value  when  such  value 
exceeds  one  florin  per  centiare. 

Certain  incomes,  such  as  those  derived  from  agricul- 
ture, horticulture,  forestry,  arboriculture,  bulb-culture, 
cattle  breeding,  land  and  peat  exploitation,  quarries  and 
mines  are  practically  exempt  from  taxation,  it  being  as- 
sumed that  the  income  is  4  per  cent  and,  as  that  amount  is 
exempt,  there  is  nothing  left  to  tax. 

Co-operative  Societies  and  Joint  Stock  Companies  are 
in  a  class  by  themselves  and  pay  a  uniform  tax  of  Zl/2 
per  cent  of  the  profits  realized. 

The  following  condensed  statement  of  rates  is  the 
arrangement  adopted  by  Seligman.  The  American 
equivalent  for  florins14  as  also  the  percentages  have  been 
added.15 


Table  A. 

Incomes  from 

Labor 
Fl.      650  ($261)  to  fl. 

700  (  281) 

750  (  301) 

800  (  321) 

850  (  342) 

900  (  362) 

950  (  382) 

1,000  (  402) 

1,050  (  422) 

1,100  (  442) 

1,150  (  462) 

1,200  (  482) 

1,250  (  502) 

1,300  (  523) 

1,350  (  543) 

1,400  (  563) 

1,450  (  583) 

1,500  (  603) 

1,600  (  643) 
Over  fl.  8,200  ($3,300) 


700 

750 

800 

850 

900 

950 

1,000 

1,050 

1,100 

1,150 

1,200 

1,250 

1,300 

1,350 

1,400 

1,450 

1,500 

1,600 

8,200 


Tax  in 
Florins 

1  .. 

2  .. 
2.75.  . 
3.50.. 
4.25.. 
5      .. 
5.75.. 
6.50. . 
7.25.. 
8      .. 
8.75.. 
9.50. . 


Percentage 
(on  lower  am't) 

0.15 

0.28 

0.36 

0.43 

0.5 

0.55 

0.6 

0.65 

0.69 

0.72 

0.76 

..0.79 


10.25 0.82 

11      0.84 

11.75 0.87 

12.50 0.89 

13.25 0.91 

14      0.93 

14-f  2%  on  surplus  over  fl.  1,500 
148+3.20%  on  surplus  over  fl.  8,200 


The  Dutch  florin  is  equal  to  40.2  cents  of  American  money. 
Seligman,  Essays  in  Taxation,  2nd  Ed.,  pp  328,  329,  Progres- 
sive Taxation,  etc.,  2nd  Ed.,  p.  80. 


14 
15 


HOLLAND 


141 


Table  B.  (for  those  liable  also  to  the  property  tax) 


When  property  amounts 
to  13,000  fl.  or  14,000  fl. 

Tax 

Income          (In  florins) 
250-    300  2 

300-    350  2.75 

350-    400  3.50 

400-    450  4.25 

450-    500  5 

500-    550  5.75 

550-    600  6.50 

600-    650  7.25 

650-    700  8 

700-    750  8.75 

750-    800  9.50 

800-    850  10.25 

850-    900  11 

900-    950  11.75 

950-1,000  12.50 

1,000-1,050  13.25 

1,050-1,150  14 

Over  1050  14+ 

2  florins  for  every  hun- 
dred florins  on  surplus 
over  1,050  fl.  But  if  the 
income,  together  with  4 
per  cent  on  the  taxable 
property,  exceeds  8,150 
fl.,  a  tax  of  1.20  per  cent 
is  payable  on  the  excess. 


When  property  varies  be- 
tween 15,000  fl.  and  200,000  fl. 

Tax 

(In  florins) 

1.25 

2 

2.75 

3.75 

4.25 

5 

5.75 

6.50 

7.25 


Income 
250-  300 
300-  350 
350-  400 
400-  450 
450-  500 
500-  550 
550-  600 
600-  650 
650-  700 
700-  750 
750-  800 
800-  850 
850-  900 
900-  950 
950-1,000 
1,000-1,050 
1,050-1,100 
1,100-1,200 
Over  1,100 


8.75 
9.50 
10.25 
11 

11.75 
12.50 
13.25 
14 
14+ 

2  florins  for  every  hun- 
dred florins  on  surplus 
over  1,100  fl.  But  if  the 
income,  together  with  4 
per  cent  on  the  taxable 
property,  exceeds  8,200 
fl.,  a  tax  of  1.20  per  cent 
is  payable  on  the  excess. 

When  property  exceeds  200,000  fl.,  the  tax  is  3.20  fl. 
on  every  hundred  florins  income  over  200  florins. 
The  exemptions  are : 

1.  For  professional  incomes  of  persons  not 
assessed  for  property  tax 650  fl. 

2.  For   professional    incomes    of   persons 

who  are  assessed  also  for  property  tax 250  fl. 

3.  For  property 

a)  a  basal  exemption  of 13,000  fl. 

b)  for  incomes  over  15,000  fl.  and  under 

200,000  fl 10,000  fl. 

The  administration  of  the  tax  is  controlled  by  elabo- 
rate regulations  resembling  in  some  respects  the  English 


142  INCOME  TAXATION 

system.  Among  the  special  features  of  the  law  is  the 
provision  by  which  the  income  tax  can  be  divided  into 
five  payments  at  intervals  of  two  months.  The  property 
tax  is  payable  one  half  November  first  and  one  half  April 
first.  Taxpayers  are  expected  to  make  returns  and  upon 
their  failure  to  do  so,  official  returns  are  made  for  them 
and  25  per  cent  added.  An  appeal  lies  primarily  to  the 
Committee  of  Assessors  and  from  that  Committee  to  the 
Council  of  Appeal  (Raad  van  Beroep),  which  latter  body 
is  composed  of  three  members  who  are  appointed,  one  by 
the  States  Deputy  of  the  province,  one  by  the  District 
Court  within  whose  jurisdiction  the  Council  has  its  seat, 
and  one  by  the  Minister  of  Finance.  Secrecy  is  required 
from  the  officials  in  regard  to  the  contents  of  the  returns. 
If  the  tax  is  not  paid  within  the  time  specified  the  Re- 
ceiver of  Taxes  who  issued  the  demand  sends  a  written 
warning  requiring  payment.  If  this  is  disregarded  a 
second  summons  for  the  same  period  is  issued  after  which 
a  compulsory  writ  may  be  served  and  made  executory  by 
the  justice  of  the  peace  of  the  district. 

There  are  also  local  income  taxes  which  were  levied 
for  many  years  before  the  State  tax  went  into  force. 
The  system  of  exemption  and  progression  was  carried  so 
far  in  some  of  the  communes  (Gemeenten)  that  the 
Government  was  compelled,  in  1897,  to  prescribe  cer- 
tain limitations  as  follows : 

In  levying  a  capitation  or  other  direct  income  tax,  no 
revenues  may  be  left  out  of  calculation,  nor  be  calculated  or 
estimated  under  their  real  amount,  except  in  so  far  as  in  the 
case  of  variable  incomes  a  mean  value  out  of  two  or  more 
years  may  be  computed. 

The  amount  of  the  tax  must  be  the  same  percentage  for 
all  incomes,  after  deduction  from  all  incomes  of  a  sum  neces- 
sary for  livelihood,  equal  for  all  incomes  or  varying  only  ac- 


HOLLAND 


cording  to  the  construction  of  the  family.  Deviation  from 
this  rule  is  permitted  if  existing  regulations  or  special  cir- 
cumstances make  such  deviation  desirable,  and  on  condition 
that  the  distribution  of  charges  do  not  vary  considerably 
from  that  which  would  be  obtained  by  adhering  to  the  said 
rule. 

In  Amsterdam  incomes  were  divided  into  five  classes ; 
in  the  first  two  classes  the  rate  was  applied  to  one- fourth 
of  the  income;  in  the  next  two  classes  to  one  half  and  in 
the  next  to  three  fourths.  In  the  town  of  Terneuzen, 
there  were  a  large  number  of  classes  and  the  rate  was 
percentual,  the  first  class  (300-399  fl.)  paying  one  half 
of  one  per  cent;  the  second  (400-549  fl.)  five  eighths  of 
one  per  cent  and  so  on  to  the  nineteenth  class  (7,000  fl.) 
which  paid  four  per  cent.16  In  the  Friesian  Commune, 
Doniawerstal,  the  progressive  feature  is  introduced  by 
levying  a  uniform  rate  upon  an  increasing  percentage  of 
the  income  as  shown  below  :17 


Portion 
Income  taxed 


Portion 
Income  taxed 


250 

20 

300 

25 

400 

30 

500 

35 

600 

40 

700 

45 

800 

50 

900 

..55 

1,200 

65 

1,400 

70 

1,600 

75 

1,800 

80 

2,100 

85 

2,400 

90 

2,700 

95 

The  place  which  the  business  or  income  tax  fills  in 
the  Dutch  system  may  be  seen  by  the  following  statement 
of  chief  sources  of  revenue  for  1905  : 


16.  Seligman,  Progressive  Taxation,  2nd  Ed.,  p.  81. 

17.  Reports    from    His    Majesty's    Representatives    Abroad    re- 
specting Graduated  Income  Taxes  in  Foreign  States.    Misc.  No.  2, 
1905,  p.  92. 


144  INCOME  TAXATION 

Business  income  tax 4.24% 

Property        "          "  4.73 

Land  tax  7.87 

House  tax  5.71 

Excise   31.49 

Succession   (inheritance)   tax 8.48 

Stamp  and  registration  tax 6.90 

Import  dues 6.65 

Other  revenues    23.95 


Total 100 

Of  the  business  tax  72.18  per  cent  is  paid  by  persons 
residing  in  the  country;  2.88  per  cent  by  non-residents 
and  the  remaining  24.94  per  cent  by  corporations. 

As  showing  the  number  of  persons  and  amount  of  in- 
come in  different  classes  in  1906-7,  the  following  table 
may  be  of  interest  :19 

Grade  of  No.  of 

Taxable  Income  Taxpayers  Income  Taxed 

600  fl.  and  above  368,774  514,064,000  fl. 


1,500 

3,500 

8,000 

20,000 

50,000 


81,701  269,172,000 

18,248  137,252,000 

4,091  69,277,000 

769  31,217,000 

144  13,400,000 


The  financial  results  for  the  year  1902-3  were  that 
306,582  taxpayers  paid  tax  on  business  or  professional 

income  to  amount  of 6,913,000  florins 

and  83,558  taxpayers  paid  property  tax 

to  amount  of 7,760,000  florins. 

Combining  these  two  it  appears  that  390,140  taxpayers, 
being  about  7  per  cent  of  the  population,  paid  14,673,000 
fl.  ($5,898,546),  which  would  be  about  ten  per  cent  of 
the  total  revenue  for  that  year  (144,049,347  fl.)-20 


18.  It  should  be  stated  that  for  the  year  1906-7  an  additional 
percentage   (opcenten)   of  10  per  cent  (of  the  tax)   was  added. 

19.  Bidragen  tot  de  Statistiek  van   Nederland  C.   I.    Statistielc 
der  Rijksinkomsten  over  de  jaren  1905  en  1906.     (1908)  p.  LXXXIII. 

20.  See  Bidrag  tot  de  Statistiek,  etc.  of.  cit.  p.  XII  and  Table 
I,  p.  2. 


HUNGARY  145 

In  1906-7  the  net  business  tax  amounted  to  8,508,516 
fl.  and  the  net  property  tax  to  8,859,296.97  fl.,  or  a  total 
of  17,367,813  fl.  ($7,081,860.83),  which  was  41.87  per 
cent  of  the  total  direct  taxes  for  that  year. 

In  1908  the  income  tax  produced  $6,724,913.28, 
which  was  9  per  cent  of  the  total  revenues  ($73,583,- 
844.78  ).21 

Java.  This  colony  of  the  Netherlands  levies  an  in- 
come tax  which  is  modeled  after  that  of  the  parent 
country.  The  yield  of  the  income  tax  proper  in  1909  was 
4,230,000  Guilder  ($1,700,460),  and  of  the  "tax  on 
trades"  (bedrijfsbelasting)  4,858,500  Guilder  ($1,953.- 
117). 


HUNGARY 

The  direct  personal  income  tax  constituted  but  one 
feature  of  the  general  scheme  of  fiscal  reform  adopted 
by  the  Hungarian  government  in  1909.  As  in  Austria, 
the  whole  system  is  extremely  complex  and  the  taxation 
of  incomes  directly  and  indirectly  is  so  interwoven  and 
blended  with  other  forms  of  taxation  that  it  is  hardly 
possible  to  give  any  intelligible  account  of  it  within  a 
brief  space. 

There  are  six  principal  classes  of  direct  taxes  which 
may  be  summarized  as  follows:  1.  ground  (or  real 
estate)  tax;  2.  classified  house  tax;  3.  tax  on  capital,  in- 


21.     I  am  indebted  to  Hon.  Henry  H.  Morgan,  United  States 
Consul  at  Amsterdam,  for  these  and  other  recent  statistics. 


146  INCOME  TAXATION 

terest,  annuities,  etc. ;  4.  produce  duties  (Erwerbssteuern) 
on  net  profits  of  such  business  enterprises  as  are  liable  to 
inspection  by  the  public  auditor;  5.  general  produce 
duties ;  6.  the  income  tax.  All  of  these  taxes  are  based,  to 
a  large  extent,  upon  income.  For  example,  the  land  tax  is 
based  upon  20  per  cent  of  the  "cadastral"  (assessed)  net 
profits;  the  house  tax  on  9  to  16  per  cent  of  the  gross 
profit  from  rentals ;  the  capital  tax  on  5  per  cent  of  gross 
profits  and  2  per  cent  of  certain  annuities;  the  produce 
tax  on  varying  percentages  such  as  4  per  cent  for  income 
from  the  learned  professions;  5  per  cent  and  7  per  cent 
on  mining  enterprises  and  certain  agricultural  and  in- 
dustrial combinations;  and  10  per  cent  on  profits  of 
limited  liability  companies. 

The  rates  of  the  income  tax  proper  are  progressive. 
The  progression  is  not  percentual,  but  there  is  a  great 
number  of  grades  with  a  fixed  tax  for  each  grade.  Thus 
incomes  of  from  800  to  900  crowns  ($162.40  to  $182.70) 
pay  a  tax  of  5  crowns  ($1.00),  which  would  be  0.62  per 
cent  on  the  smaller  amount  and  0.55  per  cent  on  the 
larger.  The  rate  on  incomes  of  from  900  to  1,000  crowns 
is  6  crowns;  on  1,000  to  1,100,  7  crowns  and  so  on  until 

at      2,000  crowns  ($     406)  it  reaches       20  crowns  or  1% 

"       5,600         "  (     1,288)   "  "            112       "  "    2  " 

"     15,000         "  (     3,018)   "  "            450       "  "    3" 

"     48,000         "  (     9,744)   "  "         1,920       "  "    4" 

"  120,000         "  (  24,360)   "  "        6,000       "  "    5" 

Above  120,000  crowns  the  payments  increase  in  such 
manner  as  to  preserve  the  5  per  cent  rate.22 

In  the  case  of  limited  liability  companies  and  trade 
unions  dealing  exclusively  with  industrial  products  the 


22.    Congressional  Record,  Vol.  45,  p.  1108. 


INDIA  147 

rate  is  uniformly  3  per  cent  upon  all  incomes  over  15,000 
crowns  ($3,045). 

There  is  a  supplementary  tax  upon  incomes  from 
salaries  and  pensions  in  excess  of  7,000  crowns  ($1,421). 
The  rates  of  this  supplementary  tax  vary  from  0.2  per 
cent  to  16  per  cent. 

The  law  discriminates  rather  harshly  against  "ab- 
sentee landlords,"  as  there  is  a  so-called  absentee  tax 
(Abzvescnheitssteuer}  which  is  levied  at  three  times  the 
regular  rate  on  the  incomes  of  such  persons.  As  is  usual 
in  most  European  countries,  the  whole  aggregate  income 
of  the  members  of  a  household  is  reckoned  as  a  unit. 

In  computing  incomes  the  following  deductions  are 
permitted :  a. )  Expenses  incurred  in  acquiring,  insuring 
and  maintaining  income;  b. )  business  losses;  c.)  insur- 
ance ;  d. )  indirect  taxes ;  e. )  legal  payments  and  duties  in 
connection  with  business  operations;  f.)  wear  and  tear; 
g.)  interest  on  debts. 

The  provisions  for  the  administration  of  the  tax  are 
substantially  similar  to  those  in  force  in  Austria. 


INDIA. 

The  income  tax  of  India  has  been  in  force  since  1886, 
and  bears  some  resemblance  to  that  of  England  in  so  far 
as  it  divides  all  incomes  into  schedules,  and  makes  pro- 
vision for  collection  at  the  source.  The  graduation  of 
the  rate  is  so  slight,  ranging  from  2  per  cent  to  2l/2  per 
cent,  that  the  tax  is  substantially  proportional. 

Income  is  classified  with  reference  to  its  sources  into 
four  categories  which,  with  the  rates,  are  as  follows : 


148  INCOME  TAXATION 

Approximate 
Rate  Percentage 

I.     Salaries  and  pensions 

Less  than  2,000  rupees   ($666.67),  4  pies  in  the  rupee — 2 

Moie  than  2,000       "      5     "      "      "        "    —2.5 

II.    Profits  of  companies 

On  all  net  profits 5     "      "      "        "    — 2.5 

III.  Interest  on  securities 

Less  than  2,000  rupees 4    "      "      "        "    — 2 

More  than  2,000       "      5     "      "     "        "    —2.5 

IV.  Other  sources 

1,000  to  1,999  rupees graded  from 

20  rupees  on  1,000—2 
to  42  "    1,999—2.1 

2,000  rupees  and  upwards 5  pies  in  the  rupee — 2.5 

The  exemption  in  the  first  category  is  1,000  rupees 
($333.33).  In  the  second  category  there  is  no  exemp- 
tion, but  certain  deductions  from  gross  income  are  per- 
mitted. These  deductions  may  be  summarized  as  fol- 
lows: 

1.  Repairs  of  tools  of  trade. 

2.  Insurance  and  rent  of  business  premises. 

3.  Cost  of  repairs  and  renewal  of  business  premises. 

4.  Wages  paid. 

5.  Net  losses. 

6.  Bad  debts  ascertained  and  written  off  for  the  first 
time  during  the  year. 

7.  Interest  on  borrowed  money  invested  in  business. 

8.  Amount  expended  to  make  good  depreciation  of 
machinery  or  plant,  but  not  to  exceed  10%. 

In  the  case  of  income  from  houses  there  may  be  de- 
ducted : 

1.  Rent  or  quit-rent  paid  by  person  assessed,  but  not 
taxes. 

2.  Insurance. 

3.  Cost  of  repairs. 

4.  Cost  of  collecting  rent,  not  exceeding  6%  of  gross 
rental. 


INDIA  149 

5.     Interest  payable  to  a  mortgagee  not  in  possession. 

The  exemption,  in  the  case  of  the  third  category,  is 
1,000  rupees,  which  applies,  as  also  in  the  first  and  fourth 
categories,  only  to  persons  whose  income  from  all  sources 
is  less  than  that  sum.  Incomes  of  more  than  1,000  rupees 
would  pay  in  full.  For  example,  an  income  of  1,200 
rupees  would  be  taxed  on  1,200  rupees  and  not  on  200. 
The  incomes  under  the  third  category  are  collected  for 
the  most  part  at  the  source,  and,  in  order  to  secure  the 
benefits  of  the  lower  rates,  the  taxpayer  can  secure  from 
the  collector  a  certificate  that  his  income  does  not  exceed 
a  certain  sum.  If  this  certificate  shows  that  the  total  in- 
come from  all  sources  is  less  than  1,000  rupees  the  person 
paying  interest  will  make  no  deduction;  if  the  income  is 
more  than  1,000  and  less  than  2,000  rupees,  2  per  cent 
will  be  deducted  from  the  interest  on  the  securities  and 
paid  to  the  government.  If  no  certificate  is  presented  it 
is  the  duty  of  the  person  paying  the  interest  to  withhold 
the  highest  rate,  that  is  %l/2  per  cent,  for  the  income  tax. 
This  would  seem  to  be  an  improvement  over  the  English 
system  by  which  the  highest  amount  is  always  withheld 
and  the  taxpayer  is  forced  to  make  reclamation  for  any 
over-payment. 

The  results  of  the  income  tax  in  India  have  been  fair- 
ly successful  when  the  smallness  of  the  rate  and  the 
poverty  of  certain  districts  are  taken  into  consideration. 
The  yield  of  the  tax  in  1906-7  was  21,171,639  rupees 
($6,869,138).  The  total  amount  of  income  assessed  in 
1906-7  was  850,500,000  rupees  ($283,500,000).  The 
number  of  income  taxpayers  was  255,762,  or  0.11  per 
cent  of  the  total  population  of  231,899,507.23  The  cost  of 


23.    Consular  Report  Congressional  Record,  Vol.  45,  p.  1110. 


I5O  INCOME  TAXATION 

collection  was  362,042  rupees  ($120,681)  or  1.7  per  cent. 
The  officers  who  collect  the  income  tax  are  salaried 
officials  employed  in  connection  with  land  revenue  and 
general  administration. 


ITALY. 

In  the  Florentine  republic,  as  early  as  1447,  a  pro- 
gressive income  tax  was  levied  which  came  to  be  known 
as  the  dccina  dispiacente,  or  displeasing  tax.  The  tax- 
payers were  divided  into  fourteen  classes  and  the  rates 
levied  on  these  classes  varied  from  eight  to  fifty  per  cent. 
This  method  of  taxation  experienced  many  changes,  being 
frequently  dropped  and  restored  until  it  was  definitely 
abandoned  in  1530. 

The  modern  tax  upon  income  of  personal  property 
(imposta  siii  redditi  della  richezza  mobile)  was  intro- 
duced in  Italy  in  1864.  As  originally  adopted  the  tax 
was  for  a  fixed  sum  annually  (30,000,000  lire),  which 
sum  was  apportioned  "repartitioned"  on  the  various 
provinces;  but  this  gave  rise  to  so  much  complaint  that, 
in  1866,  it  was  changed  to  a  definite  percentage  tax.  The 
law  experienced  a  radical  revision  in  1877.  It  was 
amended  repeatedly  in  the  eighties  and,  in  1894,  to  meet 
a  deficit,  the  rate  was  raised  from  13.20  to  20  per  cent. 
The  last  revision  was  in  1907  and  resulted  in  the  pro- 
mulgation of  the  Nuovo  regolamento  per  I'  imposta  sui 
redditi  della  richezza  mobile,  or  new  law  for  the  taxation 
of  income  from  personal  property.2* 


24.     Handwoerterbuch  der  Staatswissenschaften,  3d  Ed.    (1909) 
p.  656. 


ITALY  I^I 

The  Italian  system  presents  numerous  analogies  to 
the  English  income  tax  law,  particularly  in  its  divisions 
into  schedules  and  the  provisions  for  collecting  taxes  at 
their  source.  But  it  differs  from  the  English  plan,  and 
indeed  from  that  of  most  other  countries,  in  that  it  does 
not  tax  incomes  from  real  estate.  For  this  reason  it  is 
often  described  as  a  "partial  income  tax."  The  other 
direct  taxes  are  the  real  estate  tax  and  the  house  tax 
which  are  not  based  on  income,  but  on  assessed  valua- 
tions. 

The  rates  have  been  gradually  increased  from  8  per 
cent  in  1866  to  the  present  tax  of  20  per  cent,  which, 
however,  does  not  apply  to  all  incomes,  as  it  is  modified 
materially  for  certain  classes  by  a  very  complicated  sys- 
tem of  abatements,  exemptions  and  deductions. 

The  law  of  1894  originally  divided  all  incomes  into 
four  categories  or  schedules,  numbered  A,  B,  C  and  D, 
as  in  England;  but  it  has  been  found  convenient  to  sub- 
divide the  first  schedule  into  two  part^  designated  as  Al 
and  A2,  so  as  to  differentiate  two  kinds  of  income  from 
capital.  Thus  the  schedules  are : 

Al.  Interest  and  premiums  of  loans  of  provinces  and 
communes  and  of  companies  based  on  guaranties  and  sub- 
ventions of  the  government,  and  premiums  of  authorized 
lotteries,  etc. ;  but  the  government  debt  proper  is  not  in- 
cluded owing  to  the  non-taxability  of  the  securities  into 
which  it  was  converted. 

A2.  All  other  incomes  arising  from  investment  of 
capital,  such  as  perpetual  annuities,  loans,  bonds,  etc. 

B.  Income  resulting  from  combinations  of  capital 
and  labor  as  in  commercial  and  industrial  enterprises. 


152  INCOME  TAXATION 

C.  Incomes  arising  wholly  from  personal  exertion, 
as  in  trades  and  professions. 

D.  Wages,  pensions  and  salaries  paid  by  communes, 
provinces  or  the  Government. 

While  the  general  rate  is  20  per  cent  the  only  incomes 
subject  to  it  are  those  embraced  in  schedule  Al.  As  to 
the  other  schedules,  the  amount  of  tax  is  reduced  by 
abatements  as  follows : 

In  Schedule  A2  (interest  on  capital  other  than 
government  securities)  the  tax  is  levied  on  only 
30/40  of  the  income,  thus  reducing  the  rate  to. .  15% 
In  Schedule  B  (mixed  incomes  involving  capital 
and  labor)  the  tax  is  levied  on  20/40  of  the  in- 
come, reducing  rate  to 10% 

In  Schedule  C  (wages  from  private  employment) 
the  tax  is  levied  on  18/40  of  the  income,  reduc- 

rate  to   9% 

In  Schedule  D  (wages    from   public   employment) 
the  tax  is  levied  on  15/40  of  the  income,  making 

tax  equivalent  to 7^  % 

It  will  be  observed  that  Schedule  A  refers  wholly  to 
income  from  capital ;  Schedule  B  to  incomes  produced  by 
the  combination  of  labor  and  capital;  and  Schedules  C 
and  D  to  incomes  resulting  wholly  from  labor. 

Incomes  in  Schedules  B,  C  and  D  which,  after  mak- 
ing the  abatements  above  mentioned,  are  under  400  lire 
($77.20),  are  entirely  exempt.  As  to  incomes  in  the 
same  schedules  which  are  not  collected  at  source,  and 
which  amount,  after  the  abatements,  to  between  400  and 
800  lire,  there  are  deductions  as  follows : 

Income  Deduction 

400  to  500  lire 250  lire 

501    "    600     "  200     " 

601    "    700     "   150     ' 

701    "    800     "  100     " 


ITALY  I£3 

The  lowest  per  cent  of  tax  would  therefore  be 
reached  by  an  income  of  801  lire,  which  would  be  en- 
titled :  first,  to  an  abatement  of  20/40,  bringing  the 
amount  down  to  401  lire,  and  second,  to  a  deduction  of 
250  lire  which  would  reduce  it  still  further  to  151  lire. 
The  tax  on  151  lire  at  20  per  cent  would  be  30.20  lire, 
which  would  be  practically  3.75  per  cent  on  the  original 
800  lire. 

These  deductions  were  evidently  intended  to  lighten 
the  burden  on  smaller  incomes  and  render  the  step  less 
abrupt  from  exempt  incomes  to  those  which  pay  the  tax ; 
but  the  resulting  progression  is  not  carried  far  enough 
and  the  small  incomes  between  1,600  and  5,000  lire  ($320 
to  $1,000)  pay  the  same  rate  as  the  largest  fortunes. 

The  administration  of  the  tax  is  rendered  difficult  not 
only  by  the  extremely  high  rate,  which  is  in  itself  a  strong 
incentive  to  fraud  and  evasion,  but  also  by  the  cumbersome 
and  complicated  system  in  vogue  which  requires  the  ser- 
vices of  a  great  number  of  officials  and  still  leaves  many 
loop-holes  of  escape  for  the  shrewd  and  not  over-scrupul- 
ous taxpayer.  It  would  lead  too  far  to  attempt  any  de- 
tailed description  of  the  methods  of  assessment  and  col- 
lection, but  it  may  be  well  to  mention  the  fact  that  a  con- 
siderable portion  of  the  tax  is  collected  at  the  source — 
particularly  all  salaries,  pensions  and  interest  paid  by  the 
government  or  provinces.  All  corporations  are  required 
to  deduct  and  pay  over  to  the  government  the  income  tax 
from  dividends,  and  employers  are  required  to  make 
similar  deductions  from  wages  of  employees ;  but  this  last 
requirement  is  loosely  administered  as  the  employers  are 
required  to  report  only  once  in  two  years  the  number  of 
persons  in  their  employ  on  a  certain  date  and  it  is  not 
likely  that  all  the  money  deducted  reaches  the  govern- 
ment. 


154  INCOME  TAXATION 

In  making  the  assessment  there  is  first  a  list  of  tax- 
payers (la  lista),  then  the  tax  list  (tabella)  from  which 
is  made  up  the  assessment  roll  (rcgistro)  which  in  turn 
serves  as  the  basis  of  the  tax  roll  (il  ruolo).  The  tax  roll 
is  examined  and  revised  by  various  officials  such  as  the 
"intendantes,"  the  perfect  and  the  mayor,  after  which  it 
reaches  the  hands  of  the  communal  collectors  (esattori) 
who  collect  biennially.  The  collection  of  the  tax  is  farmed 
out  to  the  lowest  bidder.  The  average  percentage  al- 
lowed by  the  contracts  for  the  decade  1903-1912,  varies 
from  a  minimum  of  .19  lire  to  a  maximum  of  6  lire 
(6%).  It  should  be  mentioned  that  the  government  adds 
2  per  cent  (of  the  tax)  to  the  amount  of  the  tax  to  cover 
expenses  of  collection.25 

As  has  been  intimated,  the  extremely  high  rates  which 
have  been  adopted  have  had  a  tendency  to  make  the  ad- 
ministration of  the  law  very  difficult  and  are  the  cause  of 
much  fraud  and  evasion.  Out  of  a  population  of  nearly 
30,000,000  people  only  30,194  persons  were  found  in  one 
year  who  paid  income  on  more  than  2,000  lire  (say  $400) 
and  of  this  number  only  8,630  were  classed  as  having  in- 
comes exceeding  5,000  lire  ($1,000).26  It  appeared  from 
the  same  statistics  that  the  average  income  of  a  doctor 
was  less  than  $100  and  of  a  lawyer  or  civil  engineer  less 
than  $150.  On  the  other  hand,  persons  receiving  govern- 
ment salaries  or  pensions,  or  subject  to  deduction  of  in- 
come at  source,  were  unable  to  escape  or  evade  the  tax 
and  the  result  was  that  it  bore  very  unequally  upon  differ- 
ent classes. 

The  total  product  of  the  tax  in  the  fiscal  year  ending 
July  1,  1907,  was  275,600,000  lire  ($55,120,000).  As 
the  total  receipts  for  the  Kingdom  for  the  same  year 


25.  Reports    from    His    Majesty's    Representatives    Abroad   re- 
specting Graduated  Income  taxes,  Misc.  No.  2,  (1905)  p.  131. 

26.  Vidal,  E.  L'Impot  sur  le  Revenu.    Revue  Internationale  du 
Commerce,  de  1'Industrie  et  de  la  Banque,  Sept.  30,  1904. 


ITALY 


155 


were  1,954,500,000  lire,  it  thus  appears  that  the  income 
tax  contributed  14.1  per  cent  of  the  total  income. 

The  product  of  the  tax,  in  round  figures,  for  a  term 
of  years,  was  as  follows : 

1889-90 230,690,000  lire  ($46,138,000) 

1890-91 234,350,000  (  46,870,000) 

1891-92 233,700,000  (  46,740,000) 

1892-93 23 1,710,000  (  46,942,000) 

1893-94 234,370,000  (  46,874,000) 

1894-95 287,310,000  (  57,462,000) 

1895-96 289,340,000  (  57,868,000) 

1896-97 288.340,000  (   57,668,000) 

1897-98 286,390,000  (  57,278,000) 

1898-99 287,100,000  (  57,400,000) 

1899-00 289,060,000  (   57,812,000) 

1900-01 261,450,000  (  52,290,000) 

1901-02 294,730,000  (  58,946,000) 

1902-03 298,040,000  (  59,608,000) 

1903-04 298,260,000  (   59,652,000) 

1904-05 300,670,000  (   60,134,000) 

1905-06 305,250,000  (  61,050,000) 

1906-07 275,600,000  (  55,120,000) 

The  average  of  the  per  capita  tax  for  the  same  years 
was  8.54  lire  ($1.65)  ;  but  no  particular  significance  can 
be  attached  to  this  figure  unless  the  number  of  people 
who  paid  the  tax  and  the  classes  in  which  they  belong  are 
known.  The  number  of  persons  who  paid  income  tax 
can  only  be  given  for  those  who  are  enrolled  in  the 
register  (ruoli  nominativi)  and  this  number,  for  1904, 
was  about  1,200,000.  The  number  of  those  reached  by 
retaining  the  tax  at  the  source  (per  ritenuta)  is  not 
known,  as  no  statistics  are  available.  The  amount  of  tax 
collected  at  the  source  in  1904,  was  nearly  50  per  cent  of 
the  total. 

Contrary  to  the  experiences  of  most  countries  the 
amount  collected  has  been  decreasing  for  the  past  few 
years.  According  to  a  recent  Consular  report27  the 
amount  collected  in  the  fiscal  year  ending  July  1,  1908, 
was  only  255,835,378  lire  ($49,376,229)  or  16  per  cent 
less  than  in  1906-7. 


27.     Congressional  Record,  Vol.  45,  p.  1114. 


CHAPTER  IX. 


JAPAN,    LEEWARD    ISLANDS,    LUXEMBURG, 

PANAMA,  PHILIPPINES,  RUSSIA, 

FINLAND. 


JAPAN. 

The  system  of  income  taxation  now  in  force  in  Japan 
was  established  in  1899.  Supplementary  and  additional 
rates  were  provided  for  in  1904-5  to  meet  the  expenses 
of  the  war  with  Russia.  Although  these  additional  taxes 
were  to  be  abolished  upon  the  restoration  of  peace  they 
were  made  permanent  by  the  post-bellum  financial  scheme 
adopted  by  the  Twenty-second  Diet  in  1906. 

The  classes  and  rates    are    shown  by  the  following 

table:1 

Additional 

Ordinary  rates  under    Total 
rates      special  law      rate 

CLASS  1.  Per  Cent    Per  Cent    Per  Cent 

Taxes  on  incomes  of  juridical  persons 
(companies  or  corporations) 

A.  Joint  stock  companies  or  joint 

stock  partnerships  organized 
with  at  least  21  shareholders 
or  shareholding  partners 2.5  3.75  6.25 

B.  Other    juridical    persons    with 

incomes  under — 

5,000  yen   ($  2,500) 2.5  2  4.50 

10,000  yen    (     5,000) 2.5  2.25  4.75 

15,000  yen    (     7,500) 2.5  2.50  5 

20,000  yen   (  10,000) 2.5  3  5.50 

30,000  yen   (  15,000) 2.5  4.25  6.75 

50,000  yen   (  25,000) 2.5  5.75  8.25 

100,000  yen   (  50,000) 2.5  7.50  10 

100,000  yen  and  upwards 2.5  10  12.50 


1.    The  Ninth  Financial  and  Economical  Annual  of  Japan,  1909, 
p.  16. 


15  000  ven  ( 

7  500)  

35 

10,000  ven  ( 

5,000)  

3.0 

5  000  yen  ( 

2  500)  

2.5 

3,000  yen  ( 

1,500)  

2.0 

2,000  yen  ( 

1  000)  

1.7 

1,000  yen  ( 

500)  

1.5 

500  yen  ( 

250).  . 

1.2 

300  ven  ( 

150)  .  . 

..1.0 

JAPAN  157 

CLASS  2. 

Taxes  on  interest  on  oublic-loan  bonds. 
or  company  debentures  payable  in 
places  where  the  income  tax  law  is 
in  force  2.0  None  2 

CLASS  3. 

Taxes  on  incomes  not  included  in  the 
two  preceding  classes: 
Not  less  than — 

100,000  yen    ($50,000) 5.5               14.85  20.35 

50,000   yen    (25,000) 5.0              12  17 

30,000  yen  (15,000) 4.5       9.45  13.95 

7.60  11.60 

5.95  9.45 

4.50  7.50 

3.50  6 

2.60  4.60 

2.21  3.91 

1.95  3.45 

1.32  2.52 

1  2 

The  exemption  applies  only  to  incomes  in  Class  3  and 
amounts  to  300  yen  ($150).  The  smallness  of  the  ex- 
emption is  no  doubt  due  to  the  low  standards  of  wages 
and  living  in  many  portions  of  the  country.  If  the 
aggregate  of  the  incomes  of  the  members  of  a  family  or 
of  the  persons  living  in  the  same  house  exceeds  300  yen 
the  exemption  does  not  apply. 

The  deductions  or  exemptions  permitted  in  computing 
incomes  are  as  follows  : 

a.  Salaries  of  officers  and  privates  in  the  army  and 
navy  while  engaged  in  war. 

b.  Allowances  to  widows  and  orphans  and  pensions 
to  the  sick  and  wounded. 

c.  Money  received  for  traveling  or  school  expenses 
and  legal  allowances  received  for  support. 

d.  Incomes  of  juridical  persons  not  conducted  for 
profit    (as,    for    example,    religious,    educational    and 
benevolent  organizations). 

e.  Certain  occasional  incomes  not  derived  from  un- 
dertakings conducted  for  profit. 


158  INCOME  TAXATION 

f.  Incomes  derived  from  property  or  from  a  trade, 
business  or  profession  in  foreign  countries,  or  in  places 
in  which  the  income  tax  law  is  not  in  force,  but  this  does 
not  apply  to  incomes  of  juridical  persons  whose  principal 
offices  are  located  in  a  place  where  the  law  is  in  force. 

g.  Dividends  and  bonuses  received  from  corporation 
which  pay  income  tax. 

In  fixing  the  amount  of  income  under  Class  1  the  total 
losses  for  the  business  year,  the  balance  brought  forward 
from  the  preceding  year  and  the  amount  reserved  to  meet 
liabilities  for  insurance,  are  deducted  from  the  actual 
gross  profits  of  the  year  in  question. 

For  incomes  in  Class  3  the  estimated  annual  amount, 
after  deducting  the  necessary  expenses  of  making  the 
income,  is  taxed.  As  in  all  other  countries,  household 
expenses  cannot  be  reckoned  as  any  part  of  the  cost  of 
producing  income.  In  calculating  the  income  of  agricul- 
tural lands  the  average  of  the  three  preceding  years  is 
taken. 

Complete  exemption  from  the  income  tax  is  granted  to 
interest  on  savings  debentures  issued  in  accordance  with 
the  savings-debentures  law  of  1904,  as  well  as  to  interest  on 
public-loan  bonds  issued  for  the  defrayment  of  extraordinary 
war  expenses.  All  other  national  bonds,  moreover,  which 
were  formerly  subject  to  the  income  tax  in  the  same  man- 
ner as  prefectural,  municipal,  or  other  public  bonds,  were 
entirely  relieved  thereof  by  an  imperial  ordinance  approved 
by  the  Twenty-fifth  Diet,  promulgated  on  March  20  and 
carried  into  effect  on  April  1,  1909.  These  three  cases  con- 
stitute exceptions  to  the  taxation  of  incomes  of  class  2  and 
limit  the  taxable  incomes  thereunder  to  the  interest  on  public 
bonds  other  than  national  ones  and  company  debentures  pay- 
able in  places  where  the  income-tax  law  is  in  force.  In- 
terest on  bonds  and  debentures,  payable  in  places  where 
the  law  is  not  in  force,  falls  under  incomes  of  class  three.2 

2.    Congressional  Record  Vol.  45,  Jan.  27,  1910,  p.  1107. 


JAPAN 

The  administration  of  the  law  is  in  the  hands  of 
officials  of  the  department  of  taxation  in  the  bureau  of 
finance.  These  officers  are  assisted,  as  to  the  third  class 
of  incomes,  by  "income  investigation  committees"  whose 
members  are  elected  by  the  income  taxpayers  of  the  dis- 
trict concerned.  They  hold  office  for  four  years,  half  of 
the  number  being  elected  every  two  years  and  receive 
traveling  expenses  and  certain  special  allowances  in  lieu 
of  salary. 

The  incomes  of  corporations  are  ascertained  from 
their  annual  reports,  and  in  like  manner  the  amounts  of 
interest  paid  on  bonds  and  debentures  are  obtainable  from 
official  records.  The  only  necessity  for  appeal  therefore 
arises  in  connection  with  incomes  included  in  Class  three. 
Within  twenty  days  from  notification  of  the  amount  of 
his  assessment  the  taxpayer  may  apply,  through  the  chief 
of  the  taxation  office,  for  an  inquiry.  The  matter  is  then 
investigated  by  a  permanent  committee  of  inquiry.  This 
committee  is  composed  of  seven  persons,  three  tax  col- 
lectors appointed  by  the  Minister  of  Finance,  and  four 
members  of  the  "income  investigation  committee."  Pend- 
ing the  report  of  the  committee  of  inquiry,  however,  the 
tax  must  be  paid  when  due.  If  a  taxpayer  is  dissatisfied 
with  the  decision  of  the  committee  of  inquiry  he  may 
present  a  petition  to  the  local  authorities  or  bring  an  ac- 
tion in  the  administrative  court. 

As  to  the  financial  results  of  the  income  tax  in  Japan 
the  following  table  will  show  the  amounts  collected  for 
a  term  of  years  :3 


3.  The  Ninth  Financial  and  Economical  Annual  of  Japan,  1909, 
pp.  14-15.  The  Japanese  yen  equals  49.8  cents  of  American  money, 
but  is  commonly  reckoned  as  worth  50  cents. 


I6O  INCOME  TAXATION 


1896-7  1,810,221  yen  $      905,110 


1897-8   2,095,092 

1898-9   2,351,420 

1899-00 4,837,320 

1900-01 6,368,039 

1901-02 6,836,890 

1902-03 7,460,692 

1903-04 8,247,177 

1904-05 14,369,933 

1905-06 23,278,377 

1906-07 26,348,739 

1907-08 27,291,871 

1908-09 27,571,513 

1909-10 29,729,858 


1,047,546 

1,175,710 

2,418,660 

3,184,019 

3,418,445 

3,730,346 

4,123,588 

7,184,966 

11,639,188 

13,174,369 

13,645,935 

13,785,756 

14,864,929 


The  total  revenues  for  1909-10  were  518,929,283  yen 
and  the  total  amount  raised  by  taxation  was  320,534,132 
yen,  from  which  it  appears  that  the  income  tax  amounted 
to  5.73%  of  the  total  revenue  and  9.27%  of  the  amount 
raised  by  taxation.  The  percentages  for  the  preceding 
year  were  4.3  and  9.5  respectively. 

In  the  year  1907-8  the  number  of  income  taxpayers 
of  Class  3  was  917,079,  which  was  nearly  1.9%  of  the 
total  population  (48,533,000  by  the  census  of  the  same 
year).  Reckoning  the  families  of  these  taxpayers  the 
percentage  was  10.4.  The  number  of  corporations  (or 
juridical  persons)  of  Class  1,  who  paid  income  tax  dur- 
ing the  same  year  was  6,374. 

Of  the  Japanese  system  of  income  taxation  it  may  be 
said  that  it  probably  owes  its  comparative  success  more 
to  the  patriotism  and  devotion  of  the  people  than  to  any 
peculiar  provisions  of  the  law.  It  is  to  be  expected  how- 
ever that  the  Japanese,  with  their  quickness  and  aptitude 
to  adopt  modern  methods,  will  make  important  changes 
in  their  law  within  the  next  few  years.  At  present  no 
differentiation  is  made  between  taxpayers  having  large 
families  and  those  who  have  not,  nor  between  "earned" 
and  "unearned"  incomes,  except  in  the  special  provision 
under  Class  2  for  the  tax  of  2%  on  the  interest  from 


JAPAN  l6l 

public  loan  bonds  and  company  debentures.  The  fact 
that  the  rate  for  corporate  income  is  lower  than  the  aver- 
age rate  for  incomes  of  persons  is  no  doubt  due  to  a 
desire  to  facilitate  the  floating  of  loans  and  to  encourage 
industrial  enterprises.  In  this  respect  the  law  is  in  sharp 
contrast  with  the  laws  of  some  of  the  Australian  states 
which  provide  a  much  higher  rate  for  companies  than 
for  persons. 

The  total  amount  of  taxes  paid  by  the  Japanese  nation 
is  extremely  large  as  will  be  seen  by  the  following  extract 
from  the  Japanese  Chronicle  :4 

The  Japanese  Financial  Commissioner  in  London  re- 
cently estimated  that  the  Japanese  paid  35  per  cent,  in  taxa- 
tion direct  and  indirect.  The  Hochi  estimates  it  at  a  much 
larger  figure.  Although  no  precise  figures  regarding  the 
national  wealth  and  the  income  of  the  people  are  available, 
yet  the  results  of  investigations  made  by  the  Bank  of  Japan 
and  other  authorities  show  the  national  wealth  to  amount 
to  about  ten  billion  dollars,  gold  and  the  total  income  of  the 
people  to  be  between  $1,500,000,000  and  $2,000,000,000. 
This  estimate  appears  to  be  fairly  correct.  Taking  2/3  of 
this  income  as  the  cost  of  living,  a  surplus  of  about  $650,- 
000,000  will  be  left.  The  amount  collected  in  taxes  reaches 
to  between  $300,000,000  and  $400,000,000  for  national  taxes 
and  to  between  $750,000,000  and  $1,000,000,000  for  local 
taxes. 


LEEWARD  ISLANDS 


There  are  two  so-called  Presidencies  in  the  Leeward 
Islands  which  have  adopted  an  income  tax. 


4.    United  States  Consular  Report,  August,  1908,  p.  169. 


1 62  INCOME  TAXATION 

The  Presidency  of  Antiqua5  passed  an  income  tax  law 
in  1900,  which  divided  occupations  into  three  classes : 

Class  A.    Salaried  government  officials. 

Class  B.     Professional  men,  etc. 

Class  C.    Merchants. 

The  rate  of  taxation  upon  Class  A  was : 

On  salaries  of  from  £100  to  £150  ($486.65  to  $730) 
~V/2  per  cent. 

On  salaries  over  £150,  3  per  cent. 

The  amount  of  tax  collected  in  1904  was  £285 
($1,386)  and  the  number  of  taxpayers  twenty-three.  The 
exemption  is  £100.  The  taxes  in  Classes  B  and  C  are  fixed 
amounts  for  each  occupation  such  as  would  be  called 
license  taxes  in  the  Southern  states  of  the  American 
Union. 

In  the  Presidency  of  Dominica  the  income  tax  has 
existed  since  1899.  The  tax  is  a  graduated  one,  but  no 
distinction  is  made  between  earned  and  unearned  in- 
comes. In  computing  income,  the  taxes  paid  upon  in- 
come-producing property  and  for  business  licenses,  can 
be  deducted.  The  rates  are  as  follows : 

Incomes  exceeding  £50  ($243.32)  and  not  exceeding 
£100,  2*/2  per  cent. 

Incomes  exceeding  £100  ($486.65),  %y2  per  cent. 

All  incomes  of  £50  or  less  are  exempt,  but  the  exemp- 
tion ceases  when  the  income  is  more  than  £50.  The  aver- 
age yield  of  the  tax  for  five  years  ending  December,  1904, 


5.  The  Leeward  Islands  are  under  British  dominion.  They 
constitute  a  portion  of  the  Lesser  Antilles  and  are  situated  south- 
easterly from  Porto  Rico.  Their  population  is  125,000,  of  which 
less  than  five  per  cent  is  white.  See  Graduated  Income  Tax  in 
the  Colonies.  (English)  Colonial  Office,  1905. 


LUXEMBURG  163 

was  £467  ($2,272.42).    The  number  of  income  taxpayers 
was  100  or  .003%  of  the  population. 


LUXEMBURG. 

By  the  law  of  February  9,  1891,  it  is  provided  that  all 
incomes,  except  such  as  are  derived  from  real  estate  and 
mines,  shall  pay  an  impot  mobilier  as  follows : 

1.  On  incomes  from  personal  property,  3  per  cent. 

2.  On  profits  and  gains  which  are  the  result  of  per- 
sonal exertion  in  connection  with  a  trade,  profession, 
commerce  or  industry,  2  per  cent. 

3.  On  salaries,  wages,  fees  and  pensions,  one  per  cent. 
The  exemptions  comprise : 

1.  Annual  profits  and  gains  of  less  than  100  francs 
and  salaries  and  pensions  which  do  not  amount  to  200 
francs. 

2.  Incomes  of  benevolent  institutions  and  savings 
banks. 

3.  Payments  made  to  public  officials  to  indemnify 
them   for  traveling  and  other  expenses   necessarily  in- 
curred while  in  public  service. 

4.  The  pay  of  soldiers  and  of  officers  under  the  grade 
of  lieutenant,  the  wages  of  workingmen,    journeymen, 
domestics  and  servants  up  to  600  francs. 

5.  Profits  of  distillation. 

The  tax  is  divided  into  twelve  payments  which  be- 
come due  respectively  on  the  last  day  of  each  month. 

Both  the  Grand  Duchy  and  the  City  of  Luxemburg 
have  income  taxes  and  the  amount  raised  in  the  past  five 
years  is  as  follows  : 


6.  The  Grand  Duchy  of  Luxemburg  was  included  in  the  Ger- 
manic Confederation  from  1815  to  1866.  By  the  Treaty  of  London, 
1867,  it  was  declared  neutral  territory.  The  population  in  1900  was 
236,543. 


164  INCOME  TAXATION 

Grand  Duchy  City  of  Luxemburg 

1906 1,296,087.58  fr.  ($250,145)  568,169.66  fr.   ($109,657) 

1907 1,442,035.18    "  (278,313)  624,148.84    "    (120,461) 

1908 1,662,374.97    "  (320,838)  686,058.51    "    (132,409) 

1909 1,523,607.57    "  (294,056)  610,575.51    "    (117,841) 

1910 1,468,035.83    "  (283,331)  630,089.80    "    (119,906) 

The  number  of  income  taxpayers  was  as  follows : 

Grand  Duchy  City 

1906 43,293  4,637 

1907 44,595  4,264 

1908 46,910  4,688 

1909 46,719  4,780 

1910 46,408  .         4,684 

The  proportion  of  the  income  taxpayers  to  the  popula- 
tion in  the  Grand  Duchy  for  the  year  1910,  was  19.61 
per  cent.7  Beginning  with  the  year  1911,  there  will  be  a 
small  supplementary  tax  which  is  expected  to  produce 
about  30,000  francs. 


NORWAY 

Income  taxation  was  authorized  in  the  City  Com- 
munes (municipalities)  of  Norway  by  the  law  of  April 
15,  1882,  as  amended  by  the  laws  of  May  30,  1891,  July 
20,  1893,  July  23,  1894,  and  July  1,  1899.  The  State  in- 
come tax  is  of  much  more  recent  origin  and  it  is  assessed 
and  collected  largely  by  the  machinery  which  had  been 
organized  and  perfected  by  the  municipalities.  The 
methods  adopted  by  the  municipalities  give  evidence  of 
having  been  modeled  to  some  extent  upon  the  municipal 
income  taxes  which  were  introduced  in  the  Netherlands 
at  a  still  earlier  period. 


7.  The  statistics  given  above  were  furnished  the  writer  through 
the  kindness  of  Mons.  Wagner,  Inspecteur  des  Contributions  for 
Luxemburg.  For  Statistics  of  earlier  years  see  Regime  Fiscal  des 
Valeurs  Moblilieres  en  Europe,  Vol.  2  (1901),  p.  131. 


NORWAY 


i65 


The  general  law  of  1882  did  not  impose  an  income 
tax,  but  was  permissive  in  character  authorizing  the  Com- 
munes to  levy  income  taxes  within  certain  narrow  limits 
as  to  rates  and  exemptions.  The  law  permitted  double 
taxation  in  respect  to  personal  property,  as  both  the  prop- 
erty and  the  income  from  it  were  taxed;  but  this  result 
was  minimized  by  a  requirement  that  the  tax  should  not 
exceed  one-thirtieth  nor  be  less  than  one-seventieth  of 
the  tax  laid  upon  an  equal  amount  of  income.  The  prin- 
ciple of  differentiation  as  to  amount  of  exemption  ac- 
cording to  the  size  of  the  family,  has  been  carried  further 
than  in  any  other  country.  All  taxpayers  are  divided  into 
eight  classes,  the  first  class  consisting  of  those  who  have 
no  children  or  other  persons  (wives  not  counted)  de- 
pendent upon  them  for  support ;  the  second  to  the  seventh 
classes  comprise  respectively  those  who  have  1-2-3-4-5 
and  6  persons  to  support,  while  eight  includes  all  who 
have  more  than  7  dependents.  The  amount  of  total  ex- 
emption at  the  foot  of  the  scale  for  each  class  from  1  to 
8  respectively  is  200,  250,  300,  350,  400,  450,  500  and 
550  Kroner.8  In  addition  to  this  exemption  there  is  a 
series  of  special  graduated  abatements  for  each  class. 
For  example  in  the  fourth  class : 

Incomes  of     350  to     450  Kr.  have  an  abatement  of  9/10 

8/10 
7/10 
6/10 
5/10 
4/10 
3/10 
2/10 
1/10 

The  State  property  and  income  tax  differs  but  little 
from  the  municipal.  Instead  of  eight  classes  of  exemp- 


450 

700 

700 

1,000 

1,000 

1,300 

1,300 

1,600 

1,600 

2,000 

2,000 

2,600 

2,600 

3,200 

3,200 

4,000 

The  Norwegian  Krone  (crown)   is  equal  to  26.8  cents. 


1 66  INCOME  TAXATION 

tions,  however,  it  provides  for  four,  and  the  rates  are 
fixed  annually  by  the  Storting  (Parliament)  in  accord- 
ance with  an  estimate  or  "proposition"  made  by  the 
King.9  These  rates,  which  have  been  the  same  for 
several  years,  were  established  for  the  budgetal  period 
from  July  1,  1910,  to  July  1,  1911,  at 

Income  tax 

2%  on  incomes  of    1,000  Kr.  ($   268)  to    4,000  Kr. 
3%    '  "      4,000    "     (  1,072)  "      7,000    " 

4%    '  "        "      7,000    "     (  1,876)  "    10,000    " 

5%    '  "  over  10,000    "     (  2,680) 

Property  tax  0.033  of  the  total  assessed  value. 

It  should  perhaps  be  explained  at  this  point  that  all 
taxable  property  in  Norway  is  divided  into  three  classes, 
viz.: 

1.  Paste  Eiendomme.     (Real  Estate.) 

2.  Formue.     (Property   or  wealth,   real   and  per- 
sonal.) 

3.  Indtaegt.     (Income.) 

The  first  tax,  on  real  estate  as  such,  is  left  wholly  to 
the  local  bodies  as  in  Prussia.  The  property,  or  wealth 
tax,  as  we  prefer  to  call  it,  is  a  tax  at  a  very  low  rate  on 
the  total  estimated  wealth  of  an  individual.  This  would 
include  personal  property  which  might  not  be  producing 
any  income,  such  as  wheat  in  storage,  money  in  a  bank, 
outstanding  credits,  etc.  This  tax  is  somewhat  similar 
to  the  impot  complementaire  in  France,  the  supplemental 
tax  in  Germany  and  the  Allmaenna  Bevillning  in  Sweden. 
It  necessarily  involves  a  second  taxation  of  real  property, 
but  at  so  low  a  rate  that  the  additional  burden  is  hardly 


9.  See  St.  prp.  Nr.  10  (1910),  Om  indkomstskat  til  Statskassen 
i  budgetterminen  fra  1  ste  juli  1910  til  30te  juni  1911  m.  v.  Finans-  og 
Tolddepartementets  indstilling  av  23de  december  1909. 


NORWAY  167 

appreciable.  In  estimating  a  person's  wealth  the  capital- 
ized value  of  annuities,  pensions,  etc.,  which  expire  with 
his  death  are  not  included.  It  is  a  rough  estimate  at  best 
as  is  indicated  by  the  provision  of  the  law  for  "round- 
ing off"  the  amounts.  If  the  estimated  wealth  is  less 
than  5,000  Kroner  it  is  placed  at  the  nearest  amount 
which  will  divide  by  500;  if  between  5,000  and  20,000 
Kr.  at  the  nearest  amount  which  will  divide  by  2,000;  if 
between  20,000  and  150,000  Kr.  at  the  nearest  amount 
which  will  divide  by  5,000;  and  if  over  150,000  Kr.  at 
the  nearest  amount  which  will  divide  by  20,000.  While 
this  tax  is  in  no  sense  an  income  tax  it  is  closely  allied  to 
the  income  tax  as  constituting  an  important  adjunct  or 
supplement  to  it,  and  the  two  taxes  are  commonly  spoken 
of  as  the  "property  and  income  tax."  Although  the 
assessed  amount  of  wealth  is  vastly  greater  than  of  in- 
comes, being  in  1908,  in  the  proportion  of  1,825,962,933 
Kr.  to  305,367,792  Kr.,  the  amount  of  the  tax  collected 
from  incomes  is  ten- fold  greater  than  that  collected  by 
the  property  or  wealth  tax. 

The  amount  of  exemption  is  variable  according  to 
the  number  of  persons  whom  the  taxpayer  is  obliged  to 
support.  All  persons  liable  to  taxation  are  divided  into 
classes  as  follows : 

Class  I.  Those  who  have  no  dependents  to  support. 
Companies  are  included  in  this  class. 

Class  II.  Those  who  have  from  one  to  three  persons 
to  support. 

Class  III.  Those  who  have  from  four  to  six  persons 
to  support. 

Class  IV.  Those  who  have  seven  or  more  persons  to 
support. 


1 68  INCOME  TAXATION 

The  persons  considered  as  dependent  on  the  taxpayer 
may  be  his  own  or  adopted  children,  parents,  brothers 
and  sisters  and  other  relatives  and  connections  by  mar- 
riage— but  not  husband  or  wife — who  have  reasonable 
claims  for  support  and  are  actually  supported  by  him. 

There  is  a  general  exemption  of  1,000  Kroner  ($268) 
for  all  incomes,  except  those  of  non-residents  or  ab- 
sentees, who  are  entitled  to  only  400  Kroner,  without 
reference  to  the  number  of  dependents. 

As  in  the  case  of  municipalities  there  is  a  table  of  ex- 
emptions or  abatements  graduated  both  as  to  number  of 
dependents  and  amount  of  income.  By  this  table  incomes 
of  from  1,000  to  4,000  Kroner  are  classified  in  31  grades, 
the  progression  in  each  instance  being  100  Kroner.  It 
will  perhaps  suffice  to  give  four  of  these  grades  being  the 
first,  eleventh,  twenty-first  and  thirty-first. 

Amount  taxed 


Grade 

Income 

Class 

I. 

Qass  II. 

Qass 

III. 

Class 

IV. 

1 

1,000 

Kr. 

400 

Kr. 

220 

Kr. 

120 

Kr. 

60 

Kr. 

11 

2,000 

" 

1,400 

« 

1,000 

" 

800 

tt 

620 

" 

21 

3,000 

" 

2,400 

** 

2,000 

" 

1,600 

H 

1,400 

" 

31 

4,000 

" 

3,400 

" 

3,000 

if 

2,600 

" 

2,200 

" 

For  incomes  above  4,000  Kr.  there  is  a  uniform 
abatement  of  600  Kr.  in  class  I,  1,000  Kr.  in  class  II, 
1,400  Kr.  in  class  III  and  1,800  Kr.  in  class  IV.10 


10.  An  analysis  of  the  whole  table  will  show  that  there  is  a  uni- 
form deduction  of  600  Kr.  in  each  grade  of  Class  I ;  in  Class  II  the 
deductions  increase  after  the  first  by  20  Kr.  for  each  grade  until 
they  reach  1,000  Kr.  (for  an  income  of  2,000  Kr.)  from  which  point 
they  are  uniform  at  that  sum;  in  Class  III  the  deductions  increase 
40  Kr.  for  each  100  Kr.  of  income  until  they  reach  1,400  Kr.  (at 
3,000  Kr.  of  income)  from  which  point  they  are  not  changed;  in 
Class  IV  the  deductions  increase  at  the  rate  of  40  Kr.  for  each  grade 
after  the  first,  for  10  grades,  and  then  in  steps  of  20  Kr.  until  1,800  Kr. 
is  reached  for  an  income  of  4,000  Kr. 


NORWAY  169 

In  assessing  the  property  tax  the  smallest  estimated 
value  considered  is  1,000  Kr.  and  the  tax  is  levied  uni- 
formly, that  is,  without  graduation  or  reference  to  classes. 

There  is  no  distinction  made  between  "earned"  and 
"unearned  incomes,"  and  incomes  are  not  collected  at  the 
source  except  in  the  case  of  companies. 

As  illustrating  the  method  of  computing  the  tax  the 
following  concrete  instance  may  be  of  assistance : 

A  man  having  a  family  of  wife  and  four  children 
owns  property  as  follows  : 

Residence  valued  at 10,000  Kr. 

Cash  in  bank 1,000 

Money  due  from  others 4,000 

Other  personal  property 9,000 


Total 24,000 

and  has  indebtedness  to  amount  of 2,000 

and  an  annual  income  of 16,400 

In  computing  his  State  property  tax  his  debts  would 
first  be  deducted  leaving  22,000  Kr.  and,  as  20,000  would 
be  the  nearest  number  divisible  by  5,000,  his  assessment 
would  be  fixed  at  20,000  Kr.  Applying  the  rate  of  1/3 
of  a  Kroner  in  a  thousand  his  property  tax  would  amount 
to  6.66  Kroner. 

As  an  income  taxpayer  he  would  belong  in  Class  III 
and  be  entitled  to  a  deduction  of  1,400  Kr.,  which  would 
leave  his  taxable  income  15,000  Kr.  ($4,020). 

This  would  be  taxed  : 

On  the  first  4,000  Kr.  2% 80  Kr. 

"       "    next  3,000    "  3% 90    " 

"       "       "      3,000    "  4% 120    ' 

"  remaining  5,000    "  5% 250    " 

Total  income  tax 540    "    ($144.72) 

The  administration  of  the  tax  presents  some  peculiar 
features.  No  returns  are  required  of  the  taxpayers  and 
they  cannot  be  compelled  to  testify  as  to  the  amount  of 


I7O  INCOME  TAXATION 

their  incomes.  The  assessments  are  made  by  local  boards 
from  such  information  as  they  can  obtain,  and  are  then 
published.  A  period  of  four  weeks  is  allowed  within 
which  appeals  may  be  taken.  In  cases  where  the  method 
of  taxing  a  whole  district  may  be  questioned  as  to  its 
legality,  or  it  is  considered  that  certain  districts  are  taxed 
too  high  or  too  low,  provision  is  made  for  appeals  by  the 
government,  municipal  councils,  or,  in  some  instances, 
by  bodies  of  at  least  five  taxpayers,  to  a  county  commit- 
tee (corresponding  somewhat  to  county  boards  of 
equalization  in  the  United  States),  and  from  such  com- 
mittee again  to  a  state  committee  or  board  of  taxation 
chosen  partly  by  the  King  and  partly  by  Parliament. 
The  cost  of  collecting  the  tax,  so  far  as  the  State  is  con- 
cerned, amounts  to  about  50,000  Kr.  ($13,400),  or  about 
7/10  of  one  per  cent  of  the  amount  collected.11 

The  financial  results  are  no  doubt  much  below  what 
they  would  be  with  stricter  requirements  as  to  the  re- 
turns. Nevertheless  the  yield  of  the  tax  has  steadily  in- 
creased. The  local  municipal  income  tax  proper  has  in- 
creased from  9,220,878  Kroner  in  1885  to  26,845,702 
Kroner  in  1908,  and  the  State  income  tax  from  5,421,956 
Kroner  in  1903-4  to  7,296,620  Kroner  ($1,955,494)  in 
1908-9.12 

The  increase  in  the  State  tax  is  partly  due  to  a  super- 
tax of  ten  per  cent  which  has  been  levied  by  the  govern- 


11 .    See  Reports  from  His  Majesty's  Representatives  Abroad  re- 
specting Graduated  Income  Taxes  in  Foreign  States  (1905)  p.  125. 

1Z.     Statistisk  Aarbok  for  Kongeriket  Norge,  1909,  p.  143. 


NORWAY  I  7  I 

ment  for  the  last  few  years.    For  example,  in  1908-9  the 
total  state  income  and  property  taxes  were : 

Tax  on  property 608,753  Kr. 

"    Income  6,027,584    " 


6,636,337    ' 
Ten  per  cent  super-tax 660,283    " 


Total 7,296,620    " 

The  estimated  net  yield  of  the  tax  for  the  fiscal  year 
1910-11  is  7,150,000  Kroner,  which  includes  the  10  per 
cent  super-tax.13  The  total  state  revenues  amount  to 
144,588,364  Kroner,14  of  which  customs  produce  more 
than  one-third.  The  state  income  tax  amounts  to  5  per 
cent  of  the  total  revenue. 

As  to  the  Communal  taxes,  the  statistics  for  1908 
show  that  the  total  valuation  of  "property"  (movable 

wealth)  was 2,353,223,000  Kr. 

and  of  incomes 535,195,000  " 

The  amount  of  taxes  realized  was : 

From  property 4,820,645  Kr. 

"       income 26,845,702    " 

The  number  of  taxpayers  was  690,432  or  29.34%  of 
the  total  population  (2,352,786). 

For  the  year  1909  the  total  taxes  levied  were : 

On  real  estate 7,376,603  Kr. 

"    "movable  wealth"    5,106,267    " 

"    Income  .  ..27,921,884    " 


Total 40,404,754 


13.  See  page  5  of  document  cited  in  Note  9  ante. 

14.  Statistisk  Aarbok  for  Kongeriket  Norge,  1909,  p.  157. 


172  INCOME  TAXATION 

It  will  be  seen  that  the  income  tax  proper  (27,921,- 
884  Kr.  ($7,483,065)  yielded  69 %  of  the  total  amount 
raised  by  the  three  taxes. 

The  number  of  taxpayers  was : 

In  the  cities 196,757 

In  the  country 510,782 


Total 707,539 

The  proportion  of  city  taxpayers  is  relatively  small, 
being  only  27.81  per  cent. 


PANAMA 

There  is  a  partial  income  tax  in  Panama  proportioned 
to  receipts  from  personal  exertion.  The  proceeds  of  the 
tax  are  devoted  to  public  works.  Real  estate  is  also 
assessed  upon  a  slightly  graduated  scale  with  general 
reference  to  the  amount  of  annual  income  which  it  pro- 
duces. This  system  is  based  upon  Law  No.  88  of  1904, 
as  amplified  and  amended  by  Law  No.  32  of  1909.  As 
the  provisions  of  the  law  are  brief  and  explicit  it  has 
seemed  best  to  give  them  in  full : 

The  National  Assembly  of  Panama  decrees : 

Chapter  I. 

Taxes  on  real  estate  and  movable  property. 

Article  i.  The  taxes  mentioned  in  this  chapter  are  im- 
posed upon  real  estate  and  movable  property,  whatsoever 
may  be  the  form  in  which  it  is  found,  in  conformity  with  the 
following  rates: 

A.  Five  per  cent,  on  the  probable  annual  income  of  city 
property. 

B.  Lots  within  the  limits  of  towns  shall  be  divided  into 
three  classes,  which  shall  pay  annually  per  square  meter  as 
follows : 


PANAMA  173 

In  the  cities  of  Panama,  Colon,  and  Bocas  del  Toro: 
The  first  class  at  the  rate  of  B.  [Balboa]  0.04;  the  second 
class,  at  the  rate  of  B.  0.02;  the  third  class,  at  the  rate  of  B. 
o.oi. 

Ordinance  No.  51  (July  8,  1908)  respecting  subsidiary 
personal  work: 

Chapter  i.    General  Provisions. 

Article  I.  Personal  service  is  a  contribution  imposed 
on  all  male  residents  of  each  municipal  district  between  the 
ages  of  1 8  and  70. 

Article  2.  This  contribution  is  of  special  application, 
and  shall  be  entirely  applied  to  the  improvement  of  means 
of  communication,  to  public  works  of  the  respective  districts, 
and  to  the  postoffice  service,  the  latter  in  those  districts 
where  it  is  indispensable. 

Article  3.  The  municipal  corporations  can  not  include 
in  their  budget  of  revenue  a  less  sum  for  public  works  of  the 
respective  district  than  that  noted  in  the  budget  of  revenue 
as  a  product  in  money  of  the  subsidiary  contribution. 

Chapter  2.    On  the  Formation  of  the  Lists. 

Article  4.  In  each  municipal  district  there  shall  be  "a 
council  of  personal  subsidiary  work,"  whose  duty  it  shall  be 
to  form  a  list  of  those  obliged  to  render  their  personal  ser- 
vice in  accordance  with  article  I. 

Article  5.  This  council  shall  be  composed  of  the  fol- 
lowing functionaries :  The  alcalde,  who  shall  preside ;  the 
treasurer;  and  the  municipal  representative. 

The  secretary  of  the  alcalde  shall  act  as  secretary. 

Article  7.  For  the  qualification  of  the  persons  liable  to 
pay  the  personal  subsidiary  tax,  the  council  shall  take  into 
account  that  those  pertaining  to  the  first  class  are  those  who 
can  contribute  ten  days'  work  per  year.  To  the  second 
class  those  who  can  contribute  eight.  To  the  third 
class  those  who  can  contribute  six.  To  the  fourth  class 
those  who  can  contribute  four.  To  the  fifth  class  those  who 
can  contribute  three. 

Article  8.  Those  pertaining  to  the  first  class  are  the 
owners  of  haciendas,  fincas,  merchants,  and,  in  general,  all 
those  who  have  an  income  or  annual  return  from  their  work 
or  occupation  of  $3,000.  To  the  second  class  the  owners  of 
haciendas  or  fincas,  merchants,  and,  in  general,  all  those 
who  have  an  annual  income  or  return  from  their  work  or 


174  INCOME  TAXATION 

occupation  of  from  $1,800  to  $3,000.  To  the  third  class, 
those  whose  work  or  industry  produces  from  $1,000  to 
$1,800.  To  the  fourth  class,  those  whose  work,  business,  or 
industry  produces  $500  or  more  and  under  $1,000,  and  to 
the  fifth  class  those  whose  industry,  occupation,  or  business 
produces  less  than  $500  per  year. 

Article  9.  Those  of  the  first,  second  and  third  classes 
are  under  the  obligation  to  pay  for  their  services  in  money ; 
those  of  the  fourth  and  fifth  classes  in  work,  but  they  may 
also  pay  in  money  if  they  so  desire.15 

Stated  in  the  form  of  a  table  and  reversing  the  order 
of  the  classes  it  appears  that  persons  with  incomes  of 

less  than  $   500  (class  5)  pay  equivalent  of    3  days'  work  in  cash  or 

labor ; 
of  500  to  $1,000  (class  4)  pay  equivalent  of  4  days'  work  in  cash  or 

labor ; 

of  $1,000  to  $1,800  (class  3)  pay  equivalent  of  6  days'  work  in  cash; 
of  $1,800  to  $3,000  (class  2)  pay  equivalent  of  8  days'  work  in  cash; 
and  over  $3,000  (class  1)  pay  equivalent  of  10  days'  work  in  cash. 

While  the  law  may  appear  somewhat  crude  at  first 
glance  it  has  distinct  advantages  in  its  simplicity,  its  gen- 
eral application  to  all  classes  and  its  direct  relation  to 
earning  ability.  In  view  of  the  fact  that  there  is  prob- 
ably no  other  country  where  so  large  a  proportion  of  the 
population  receive  wages  and  salaries,  it  is  rather  sur- 
prising that  no  provision  for  collecting  that  part  of  the 
tax  payable  in  cash  at  the  source  has  been  made. 


THE  PHILIPPINES 


In  1878,  while  the  islands  were  under  Spanish 
dominion,  a  tax  was  levied  upon  all  incomes  except  those 
derived  from  agriculture.  This  tax  was  divided  into  two 
parts,  one  of  which  was  quite  similar  to  the  Spanish  sys- 


15.    See   Consular  Report    in    Congressional   Record,  Vol.   45 
(Jan.  27,  1910)  p.  1116. 


THE   PHILIPPINES  175 

tern  of  taxing  profits  and  was  known  as  the  contribution 
dirccta  sobre  la  industria,  cl  commercio,  las  professiones 
y  las  artes.  This  tax  was  imposed  by  a  royal  decree  of 
June  19,  1890,  and  was  designed  to  reach  incomes  from 
salaries,  dividends,  investments  and  profits  of  business 
generally.  The  rate  was  half  a  tithe  or  five  per  cent  upon 
the  net  income  and  some  relief  was  afforded  to  the  lower 
grades  by  exemptions  and  abatements.  This  tax  has 
come  to  be  known  as  the  "industria"  or  "industrial  tax," 
although  the  term  is  somewhat  misleading. 

The  other  tax  was  designed  to  reach  the  income  from 
urban  real  estate.  It  was  known  as  the  contribution 
directa  sobre  la  propriedad  urbana,  or  more  commonly, 
as  the  "urbana'  tax.  The  rate  for  this  tax  was  five  per 
cent  upon  the  net  rental  value  of  all  houses  or  buildings, 
with  a  deduction  for  repairs,  which  was  originally  forty 
per  cent,  but  was  eventually  reduced  to  twenty-five  per 
cent.  There  was  also  a  super-tax  of  five  per  cent  upon 
both  taxes  which  was  intended  to  cover  the  cost  of  col- 
lection.16 

The  place  which  these  taxes  filled  in  the  budget  may 
be  seen  from  the  statistics  for  the  years  1894-5  which 
show  that  the  total  revenues  were  $13,579,000;  the 
amount  raised  by  direct  taxation  was  $6,659,450,  of 
which  sum  the  "industria"  tax  contributed  $1,323,000 
and  the  "urbana"  tax  $110,400.17 

The  Internal  Revenue  Law  of  1904,  promulgated  by 
the  Philippine  Commission  July  2,  1904,  contained  the 
following  clause : 


16.  Plehn,  C.  C.     Taxation  in  the  Philippines,  in  Political  Sci- 
ence Quarterly,  Vol.  16,  No.  4,  (Dec.,  1901)  pp.  701-711,  and  Vol.  17, 
No.  1,  p.  147. 

17.  Report  of  Philippine  Commission  transmitted  to   Congress 
Feb.  2,  1900,  p.  80. 


176  INCOME  TAXATION 

All  industrial  taxes  and  stamp  taxes  imposed  under  the 
Spanish  regime  and  heretofore  in  force  in  these  islands  are 
hereby  repealed,  except  as  otherwise  specially  provided  in 
this  act,  and  the  taxes  imposed  by  this  act  are  substituted  in 
lieu  thereof.18 

The  only  part  of  the  Industrie,  tax  which  was  retained 
related  to  business  licenses  and  even  this  was  materially 
changed.  Under  the  old  law  merchants  and  manu- 
facturers paid  quarterly  in  advance  certain  specific, 
arbitrary  amounts  which  were  the  same  for  all  persons 
engaged  in  the  same  business,  regardless  of  the  amount 
of  business  transacted.  Neither  the  value  of  the  mer- 
chant's stock,  nor  the  extent  of  his  business,  nor  the 
amount  of  his  profits  were  used  as  bases  for  determining 
his  assessment.  Under  the  new  law  a  tax  is  levied  at  the 
end  of  each  quarter  of  one  peso19  for  each  300  pesos  of 
sales  during  that  period20  and  in  this  manner  the  amount 
of  the  tax  is  proportioned  to  the  volume  of  business 
transacted — being  practically  one-third  of  one  per  cent 
of  the  gross  receipts.21 


RUSSIA 


While  Russia  is  often  mentioned  in  the  list  of 
countries  which  have  no  income  tax,  the  statement  re- 
quires some  qualification. 


18.  Act  No.  83  entitled  a  General  Act  for  the  organization  of 
provincial  government  in  the  Philippine  Islands,  published  by  auth- 
ority of  the  Philippine  Commission.     Manilla,  1905,  Section  146,  p. 
114. 

19.  The  peso  is  equal  to  50  cents  of  American  money. 

20.  Hord,  John  S.  (Collector  of  Internal  Revenue  in  the  Philip- 
pines)   Internal  Taxation   in  the  Philippines.     Johns  Hopkins  Uni- 
versity Studies.  Vol.  25,  (Jan.,  1907)  p.  7. 

21 .  In  Porto  Rico  taxes   similar  to  the  industria  and  urbana 
were  in  force  until  they  were  supplanted  by  the  United  States  Rev- 
enue Act  of  January  31,  1901,  known  as  the  Hollander  Bill,  which 
provided  for  a  general  property  tax,  a  series  of  excise  taxes  and  an 
inheritance  tax.     Hollander,  J    H.     The  Finances  of  Porto  Rico,  in 
Political  Science  Quarterly,  Vol.  16,  (Dec..  1901)  p.  554. 


RUSSIA  177 

As  far  back  as  1724  classified  poll  taxes  were  levied 
in  somewhat  the  same  manner  as  in  England  and  this 
ancient  tax,  which  bore  some  rough  relation  to  income, 
was  not  wholly  abolished  in  European  Russia  until 
1887.  It  is  still  retained  in  Siberia.  At  the  present 
time  the  principal  state  taxes  are  those  on  real  estate, 
corresponding  to  the  American  property  tax.  These 
taxes,  while  crude  and  unjust  in  many  particulars,  are  a 
distinct  improvement  upon  the  "collective  liability"  plan 
by  which  the  amount  of  tax  needed  was  levied  upon  the 
entire  rural  commune  collectively  and  arrears  were 
exacted  from  all  or  any  of  the  inhabitants  of  the 
village  indiscriminately.  By  a  law  of  1893,  pro- 
vision was  made  for  valuing  land,  not  by  its  actual 
market  value,  as  had  been  the  custom,  but  accord- 
ing to  the  average  net  income  which  it  produced  or  could 
be  made  to  produce.  The  average  rate  on  income  of 
landed  property,  or  land  valued  according  to  its  revenue, 
is  about  4  per  cent. 

There  is  also  a  "ticket"  or  license  tax,  levied  osten- 
sibly according  to  the  number  of  shops  belonging  to  each 
trader,  but  in  fact,  with  some  reference  to  capital  and  in- 
come. This  is  in  addition  to  the  "patente"  or  license 
system,  borrowed  from  France  in  1824,  which  levies  a 
fixed  sum  on  each  occupation  regardless  of  the  amount 
of  capital  invested.  As  it  was  realized  that  these  taxes 
were  very  unequal  in  their  application,  a  third  or  supple- 
mentary tax,  was  established  in  1885,  during  the  financial 
administration  of  M.  Boongue,  which  provided : 

1.  A  separate  tax  of  5  per  cent  on  the  net  profits  of 
various  share  companies  and  joint-stock  associations — 
practically  a  corporation  income  tax. 


178  INCOME  TAXATION 

2.  A  levy  every  three  years  on  all  other  commer- 
cial and  industrial  undertakings.  This  tax  is  laid  annual- 
ly upon  the  various  districts  and  taxpayers  on  the  basis 
of  estimated  profits. 

These  taxes  on  trade  and  industry  amounted  in  1895, 
to  about  40  per  cent  of  the  whole  amount  raised  by  direct 
taxation.22 

There  is  still  another  tax,  sometimes  called  the  "tax 
on  capital;"  but  in  reality  it  is  a  tax  of  5%  upon  the  in- 
come or  interest  of  capital  loaned  or  invested  in  interest- 
bearing  securities.  In  the  estimates  for  1908  the  direct 
taxes  were  classified  as 

Land  tax    61,870,259  Rubles  ($31,863,183) 

Trade  and  industry  taxes 99,208,000        "        (  51,092,120) 

5%  on  income  of  capital 21,745,000        "        (  11,198,675) 


Total 182,823,259 

The  direct  taxes  constitute  something  less  than 
of  the  total  revenues. 

Finland.2*  An  income  tax  was  voted  by  the  Finnish 
Diet  in  1863-4  and  remained  in  force  for  about  twenty 
years.  For  several  years  it  was  considered  as  a  per- 
manent tax;  but  it  did  not  prove  so  productive  as  had 
been  anticipated  and  was  therefore  changed  to  a  tem- 
porary tax  to  be  levied  annually,  if  needed.  It  was 


22.  Statesman's  Handbook  for  Russia  (edited  by  the  Chancery 
of  the  Committee  of  Ministers)   Vol.  1,  p.  169. 

23.  The  Statesman's  Year  Book,  1909,  p.  1159.     (The  ruble  = 
51.5  cents.) 

24.  The  Grand  Duchy  of  Finland  was  ceded  to  the  Emperor  of 
Russia  by  the  Treaty  of  Frederikshamn,   September   17,   1809.     By 
special  grant  of  Alexander  I,  (renewed  by  his  successors)  the  Swe- 
dish Constitution  which  had  been  in  force  since  1772  was  preserved, 
though  it  has  been  considerably  amended   and    "reformed"   at   vari- 
ous times.     Population  (1906)  2,933,856.   Area  125,784  sq.  m.    States- 
man's Year  Book  1909,  p.  1185. 


FINLAND  179 

dropped  as  a  state  tax  in  1895,  although  still  used  by 
cities  and  communes  for  local  purposes. 

As  originally  adopted  the  law  exempted  the  first  500 
Markkaa25  ($96.50) ;  but,  as  amounts  under  50  Markkaa 
were  not  considered  and  those  above  50  and  up  to  100 
were  reckoned  as  100,  the  exemption  practically  amounted 
in  many  cases  to  550  Markkaa. 

At  a  later  period  the  exemption  was  limited  to  in- 
comes of  less  than  2,500  Markkaa  ($482.50).  The  rates 
adopted  were: 

On  incomes  of  500  to  2,500  Markkaa  (450  Markkaa  exempt)  4/5 

of  1% 

On  incomes  of  2,500  to  5,000  Markkaa  (no  exemption)  4/5  of  1% 
On  incomes  of  5,000  to  10,000  Markkaa  (no  exemption)  1% 
Exceeding  10,000  Markka  (no  exemption)  1  1/5% 

The  yield  of  the  tax  proved  unsatisfactory  and  the 
reasons  for  this  result  were  evidently : 

1st :  That  the  greater  portion  of  the  population  had 
incomes  of  less  than  500  Markkaa  and  large  fortunes 
were  rare. 

2nd :    That  the  rate  was  very  low ;  and 

3rd :  That  the  administration  of  the  tax  was  ex- 
tremely lax. 

In  spite  of  those  drawbacks,  however,  the  amount 
collected  increased  from  425,630  Markkaa  ($81,146)  in 
1868  to  860,356  Markkaa  ($166,048)  in  1881,28  and 
there  appears  to  be  a  growing  public  sentiment  in  favor 
of  a  State  income  tax  along  more  modern  lines. 


25.  The  Finnish  Markka  (plural  Markkaa)  is  a  silver  coin  equi- 
valent to  the  French  franc,  or  19.3  cents  in  American  money.     It  is 
divided   into  100  penni  which  are  therefore  of  the  same  value  as 
the  French  centimes.     It  is  sometimes  called  Mark,  but  should  not 
be  confused  with  the  German  Mark,  which  is  equivalent  to  23  4/5 
cents. 

26.  Ignatius,  K.  E.  F.  Bidrag  till  Finlands  Officiela  Statistik,  4, 
Oeversigt  af  inkomstbevillningens  resultater,  ar  1881. 


ISO  INCOME  TAXATION 

In  addition  to  the  income  tax  there  was  the  "Cen- 
tonal,"  or  one  per  cent  tax  on  the  salaries  and  pensions  of 
public  officials.  This  tax  is  still  in  force.  It  produces 
about  100,000  Markkaa  each  year  which  is  applied  to  the 
military  fund.  There  is  also  a  capitation  tax  known  as 
the  "Mantalspenningar"  which  is  levied  at  the  rate  of  two 
Markkaa  for  each  man  and  one  Markka  for  each  woman 
between  the  ages  of  16  and  64  years.  It  yields  annually 
about  2,000,000  Markkaa  ( $386,000 ).27 


27 '.    Fredericksen,  N.  C.  Finland,  its  Public  and  Private  Economy 
(1902),  p.  263. 


CHAPTER  X. 


ST.  VINCENT,  SEYSCHELLES,  SPAIN, 
SWEDEN,  SWITZERLAND. 


ST.  VINCENT. 

The  present  law,  which  went  into  effect  in  1905,  is  a 
revision  of  the  previous  laws  without  any  change  in  rates. 
The  first  law  was  the  "Income  and  Land  Tax  Ordi- 
nances," 1887  to  1897,  which  was  followed  by  the  In- 
come Tax  Ordinances  of  1902  and  1903.  The  rates  are 
as  follows: 

Income  £  50  to  £100  ($    486.65)  20  s.  per  hundred  £,  or  1    % 

100  "      200  (      973.00)  30  s.     "  "       "    "    1.5  " 

200  "      300  ( .1,460.00)  40  s.     "  "       "    "    2     " 

over         300  60  s.     "  "      "    "    3    " 

There  does  not  appear  to  be  any  exemption  except 
that  incomes  under  £50  ($243.32)  are  not  taxed.  The 
provisions  for  the  administration  of  the  tax  are  quite 
complete.  Taxpayers  are  expected  to  make  returns  of 
their  income  and  the  amount  of  income  shown  by  the  re- 
turn cannot  be  increased  by  the  assessor  without  notice. 
A  peculiar  feature  of  the  law  is  the  requirement  that  the 
Governor  shall  cause  the  income  tax  rolls  to  be  published 
in  the  Official  Gazette  and  copies  to  be  posted  in  the  police 
stations  and  elsewhere. 


1 82  INCOME  TAXATION 

The  yield  of  the  tax  in  1904  was  £438  11  s.  3  d.  and 
the  average  for  the  years  1897  to  1904,  £525  ($2,554.65). 
The  number  of  taxpayers  for  1904  was  217,  or  0.4  per 
cent  of  the  total  population. 


SEYCHELLES 

Under  Ordinance  No.  16  of  1900,  the  following  rates 
are  levied  upon  all  persons  falling  within  4  classes,  to- 
wit: 

Class   I.     Owners  of  immovable  Rate 

property    in    the    Town    of 

Victoria.  4%     on     the     annual     locative 

(rental)  value  of  such  prop- 
erty. 

Class  II.  Owners  of  immovable 
property  outside  the  Town 

of  Victoria.  3%  on  the  annual  locative  value 

of  such  property. 

Class  III.  Persons  deriving  an 
annual  income  of  not  less 
than  £16.  V/2% 

Class  IV.  Every  male  between 
the  ages  of  15  and  55  (school 
boys  excepted)  not  included 
in  any  of  the  previous 
classes.  3  s.  per  head 

There  are  no  exemptions  and  the  tax  is  computed 
upon  gross  income  except  that  planters  may  deduct  cost 
of  labor,  merchants  may  deduct  cost  price  of  goods,  and 
contractors  and  other  employers  of  labor  may  deduct  cost 
of  labor  and  material.  The  tax  is  assessed  upon  returns 
by  the  individual  taxpayers  except  in  the  case  of  Govern- 
ment officers  whose  tax  is  deducted  from  their  salaries. 
Ministers  of  religion  and  certain  police  officials  are  ex- 
empt from  the  tax.  There  is  a  surcharge  of  10%  upon 
ratable  persons  who  make  no  returns. 


SPAIN  183 

The  capitation  tax  of  about  seventy-five  cents  per 
head  on  all  persons  who  do  not  pay  income  tax  has  much 
to  be  said  in  its  favor  and  it  is  rather  surprising  that  the 
only  country  to  adopt  this  plan  should  be  these  remote 
and  almost  unknown  islands.  It  is  due  to  this  tax  that 
7,800  persons,  or  40  per  cent  of  the  population,  are  in- 
come taxpayers,  which  is  a  percentage  more  than  double 
the  usual  proportion.  The  yield  of  the  tax  levied  upon 
the  4  classes  above  described  for  the  year  1904  was  be- 
tween 50,000  Rupees  ($16,220)  and  60,000  Rupees 
($19,464),  or  15  per  cent  of  the  total  revenues  of  the 
colony  for  the  same  year.1 


SPAIN. 


There  is  no  income  tax  in  Spain  in  the  sense  of  a  tax 
proportioned  to  the  taxpayers'  whole  income,  regardless 
of  source.  Indeed,  such  a  very  competent  authority  as 
the  Director  General  of  Taxation  in  Spain  has  assured 
us  that  there  is  no  income  tax  of  any  kind  in  that  country. 
But  this  appears  to  be  a  question  of  nomenclature,  as  the 
tax  on  profits  of  movable  wealth,  or  personal  property, 
(contribution  sobre  ntilidades  de  la  riqueza  mobiliaria) 
has  been  treated  by  many  writers  as  a  partial  or  limited 
income  tax,  and  it  certainly  has  all  the  characteristics  of 
a  highly  differentiated  income  tax  so  far  as  it  goes. 

The  law  of  March  27,  1902,2  together  with  the  regula- 
tions of  September  16,  1906,  provides  for  three  series  of 


1.  Graduated  Income  Taxes   in  the    (English)    Colonies.     Co- 
lonial Office,  1905.     No.  196. 

2.  See  Gaceta  Official  de  Madrid,  March  28,  1900,  where  it  is 
published  in  full. 


184  INCOME  TAXATION 

tariffs  on  profits — first,  of  labor  (utilidades  procedentes 
del  trabajo  personal} ;  second,  of  capital  (utilidades  pro- 
cedentes del  capital)  ;  and  third,  of  labor  and  capital  com- 
bined (utilidades  procedentes  del  trabajo  juntamente  con 
el  capital).  The  rates  vary  from  one-half  of  one  per 
cent  on  life  insurance  premiums  to  20  per  cent  on  numer- 
ous items  and  are  frequently  progressive  within  a  certain 
class.  For  example,  in  taxing  profits  of  personal  exer- 
tion, certain  bank  officials  and  managers  of  property  or 
estates  are  taxed  10  per  cent,  while  clerks  and  employees 
of  banks,  companies,  societies  and  commercial  houses,  as 
also  insurance  agents,  actors,  bull-fighters,  acrobats  and 
conjurors,  pay  five  per  cent. 

Day  laborers  and  persons  receiving  salaries  of  less 
than  1,500  pesetas  ($289.50)  are  exempt. 

Salaries  of  state  officials  en  disponibilite  and  pen- 
sioners of  states,  provinces  or  municipalities,  are  taxed 
according  to  the  following  scale : 

Incomes  not  exceeding  1,500  pesetas  pay 15% 

"         above  1,500  and  not  exceeding  2,500 16% 

"         above  2,500  and  not  exceeding  5,000 18% 

exceeding  5,000   20% 

Salaries  of  persons  in  the  civil  service  of  the  State 
are  graded  so  that  persons  receiving  incomes : 

not  exceeding  1,500  pesetas  pay 10% 

above  1,500  and  not  exceeding  2,500  pay 12% 

"        2,500     "       "  "  5,000    "  14% 

5,000     "       "  "  7,500     "  16% 

7,500     "       "  "          12,500     "   18% 

"      12,500  20% 

Military  officers  pay  rates  varying  from  5  per  cent  for 
captains  and  subalterns  to  18  per  cent  for  generals. 


SPAIN  185 

Employees  and  officials  of  provincial  councils  and 
municipalities  pay  6  per  cent  on  salaries  not  exceeding 
1,000  pesetas  ($193). 

12%  on  salaries  of      1,000  to  5,000  and 
16%   "        "       over  5,000. 
In  the  tariff  which  includes  profits  from  capital, 

1.  The  interest  on  Spanish  securities — (with  the  ex- 
ception of 

a)  the  5%  Consolidated  debt  to  the  United  States, 

b)  the  4%  perpetual  debt  to  Denmark, 

c)  shares  of  external  4%  debt  owned  by  foreigners) 
is  taxed  at  20%.    Other  rates  are, 

2.  On  dividends  of  banks  of  issue  (i.  e.,  Bank  of 
Spain  5  per  cent. 

3.  On  dividends  of  transportation  and  other  com- 
panies (except  mining),  provincial  and  municipal  loans, 
interest  on  mortgages,  3  per  cent. 

4.  Mining  companies,  2  per  cent. 

The  rates  for  the  third  tariff,  representing  combina- 
tion of  labor  and  capital,  are  shown  by  the  following 
table : 

1.  Profits  of  Banks 15% 

2.  ."        "    companies  (other   than  mining  and 

railway) 12% 

3.  "    transportation  companies   7% 

4.  "    societies     for   production   and   con- 

sumption (except  those  of  work- 
ingmen),  including  co-operative 
credit  associations 6% 

5.  Premiums  on  fire  insurance 2% 

6.  Premius  on  life  and  accident  insurance 0.5% 


1 86  INCOME  TAXATION 

By  the  terms  of  the  budget  of  1905  incomes  of  pri- 
vate individuals  under  1,500  pesetas  and  salaries  of  per- 
sons in  the  employ  of  the  State  under  1,000  pesetas  were 
exempt. 

Companies,  etc.,  deducting  income  at  source  are 
allowed  one  per  cent  for  making  the  collection.  No 
statistics  are  available  to  show  the  cost  of  collection. 

There  is,  in  addition  to  the  tax  on  profits  above  de- 
scribed, a  "tax  on  the  exercise  of  industrial,  commercial 
and  professional  enterprises"  commonly  called  the  in- 
dustry or  industrial  tax.  This  corresponds  somewhat  to 
the  occupation  or  business  license  tax  in  the  Southern 
states  of  the  American  Union.  There  are  five  principal 
"tariffs"  which  have  a  great  number  of  divisions  and  sub- 
divisions. The  third  tariff,  for  example,  has  418  head- 
ings with  643  specific  rates. 

The  most  notable  features  of  the  Spanish  tax  on 
profits,  or  income,  are,  first,  the  great  length  to  which  the 
principle  of  differentiation  is  carried  and,  second,  the  fact 
that  practically  all  the  incomes  reached  are  such  as  can 
be  and  are  collected  at  the  source. 

As  in  Italy,  there  is  no  attempt  to  reach  the  income 
from  real  estate,  it  being  considered  that  the  direct  land 
tax  is  a  more  efficient  method.  In  spite  of  the  large  ex- 
tent to  which  income  is  collected  at  the  source  it  is  said 
that  there  is  a  great  amount  of  fraud  and  evasion.3 

Mr.  E.  Hicks  Beach,  third  Secretary  to  the  British 
Embassy,  has  prepared  a  tabular  view  of  the  Spanish 
system,  a  portion  of  which  (somewhat  condensed)  is 
quoted  to  show  the  general  outlines  of  the  scheme  :* 


3.  Vidal.    L'impot    sur    le   revenu.    Revue    Internationale    du 
Commerce  de  1'Industrie  et  de  la  Banque.     Sept.,  1904,  p.  552. 

4.  Reports  from  His  Majesty's  Representatives  Abroad  respect- 
ing graduated  income  taxes  in  Foreign  States,  (August,  1905)  p.  137. 


SPAIN 

I87 

Source  of  Income            PrincipleAsSeSSrae"|ystem 

Rate 

(a)  Indirect 

Per  Cent 

earnings  — 

'Differentiation 
(in    favour    of 
direct  earn- 
ings without 

e.g.,  Direc- 
tors, etc., 
of  Banks 
and  Com- 

regard to 

panies  

10 

Tariff  I: 

facility  of  col- 
lection) 

(b)  Direct  earn- 
ings —  e.g., 

Earnings. 

Agents,  and 
employees, 

5 

(c)  "Passive" 

Differentiation 

e.g.,  Pen- 

combined 

sions,  &c..  .  , 

15  to  20 

with  gradua- 

(d) "Active" 

tion. 

official 

salaries  — 

10  to  20 

r(a)  State 

'Differentiation 

securities.  .  . 

20 

Tariff  II: 

(the  rate  rises 

(b)  Bank  shares.  . 

5 

Interest  on      « 
Investments. 

in  proportion 
to  the  facili- 
ties of  collec- 

(c) Business, 
municipal 

tion  at  source) 

loans,  rail- 

ways, mort- 

gages,  &c  .  .  . 

3 

'Differentiation 

"(a)  Banks  

15 

(the  rate  rises 

(b)  Limited 

in  proportion 

Companies.  . 

12 

Tariff  III: 

to  the  facility 
of  collection 

(c)  Railways 
and  canals.  . 

7 

Interest  and    . 
earnings  com- 
bined. 

at  source,  and    . 
in  inverse 
proportion  to 

(d)   Co-operative 
Associa- 
tions   

6 

the  public 
benefit  accru- 

(e) Insurance 

ing  from  the 

property  .... 

2 

..    enterprise) 

personal    .  .  . 

As  to  the  financial  results  of  the  system,  it  would  seem 
that  the  proportion  of  tax  collected  from  earnings  by  per- 
sonal exertion  is  much  lower  than  in  other  countries.  For 


l88  INCOME  TAXATION 

example,  in  1903,  the  amount  of  income  returned  from 
earnings  was  only  one  twenty-fourth  of  that  from  prop- 
erty, and  property  and  personal  exertion  combined.  The 
amount  of  tax  collected  for  1903  was  $18,426,345.  In 
the  budget  for  1908  the  tax  represented  134,000,000 
pesetas  ($25,862,000)  in  a  total  estimated  income  of 
1,040,000,000  pesetas.  The  proportion  of  the  tax  was 
therefore  12.88  per  cent  of  the  whole  national  income.5 


SWEDEN 

A  combined  property  and  income  tax  was  adopted  in 
Sweden  in  1897,  but  the  present  income  tax  proper  dates 
from  July  21,  1902.  By  the  provisions  of  the  first  law, 
which  is  usually  called  the  "General  Supply"  (Allmaenna 
Bevillning),  real  estate  was  taxed  upon  its  value  as  deter- 
mined by  assessments  made  every  five  years,  and  certain 
classes  of  income,  such  as  dividends  on  investments  in 
public  companies,  were  not  taxed.  The  rate  of  this  tax 
is  usually  one  per  cent  and  it  is  made  slightly  progressive 
by  abatements  on  smaller  incomes  as  follows :  Incomes 
below  500  Kronor6  ($134)  are  exempt.  For  incomes 
between  500  and  1,200  Kr.  ($321.60)  there  is  an  abate- 
ment of  450  Kr.,  which  would  have  the  effect  to  reduce 
the  rate  on  unabated  income  to  1/10  of  1%  for  500  Kr. 
and  0.54%  for  1,200  Kr.  There  is  also  an  abatement  of 
300  Kr.  for  incomes  between  1,200  and  1,800  Kr.  The 
exemption  and  the  abatements  may  be  increased  not  to 
exceed  200  Kr.  in  cities  where  house  rent  is  very  high. 


5.  Consular  Report  in  Congressional  Record,  Vol.  45,  (Jan.  27, 
1910)  p.  1115. 

6.  The  Swedish  krona   (pi.  kronor)   is  equal  to  26.8  cents  of 
American  money.    It  is  divided  into  100  oere. 


SWEDEN  189 

The  income  tax  law  of  1902,  as  amended  in  1907  and 
1908,  does  not  supplant  any  portion  of  the  former  law, 
but  is  strictly  supplemental  to  it.  It  is  intended  to  reach 
all  forms  of  income,  including  dividends  from  companies 
and  revenues  of  real  estate.  The  amount  of  income  from 
real  estate,  however,  is  arbitrarily  fixed  at  6  per  cent  of 
the  assessed  valuation  for  agricultural  land  and  5  per  cent 
for  other  land. 

The  real  estate  valuations  used  are  those  obtained  for 
the  "general  supply"  law,  with  the  difference  that  the 
later  law  permits  the  deduction  of  mortgage  incum- 
brances.  As  illustrating  the  working  of  the  two  laws 
in  regard  to  real  estate  the  case  may  be  taken  of  a 
man  who  owns  a  farm  which  has  been  assessed  for 
100,000  Kr.  ($26,800).  Under  the  "general  supply"  law 
he  would  pay  6  oere  for  every  100  Kr.  of  assessed  value, 
or  60  Kr.  ($16.08).  In  the  case  of  the  income  tax,  his 
income  from  the  land  would  be  assumed  to  be  6  per  cent 
of  100,000  Kr.  or  6,000  Kr.,  which,  at  one  per  cent, 
would  yield  a  tax  of  60  Kr.  His  total  tax  under  the  two 
laws  would  therefore  be  60+60=120  Kr.  ($32.16). 

The  most  notable  feature  of  the  Swedish  income  tax 
law  is  the  finely  graded  scale  of  progression  which  has 
been  secured  wholly  by  means  of  abatements  and  addi- 
tions, while  preserving  a  uniform  rate  of  tax.  The  numer- 
ous advantages  of  such  a  plan,  as  well  as  its  scientific 
justification,  are  at  once  apparent.  With  a  uniform  rate, 
determinable  annually,  the  task  of  adapting  the  tax  to 
the  fiscal  needs  of  the  Kingdom  is  rendered  very  simple. 
Not  only  can  the  yield  of  the  tax  be  increased  or 
diminished  by  a  slight  variation  in  the  rate,  but  the 
amount  of  such  increase  or  diminution  can  be  estimated 
in  advance  with  approximate  accuracy.  On  the  other 
hand,  the  curve  of  progression  obtained  corresponds  very 


190 


INCOME  TAXATION 


closely  with  the  latest  and  most  approved  scientific 
formulae.  The  method  by  which  the  progression  is 
secured  may  seem  a  little  complicated  at  first  glance,  but 
it  is  in  accordance  with  very  simple  rules.  These  rules 
may  be  summarized  as  follows :  Incomes  under  1,000 
Kr.  are  exempt.  If  the  income  amounts  to  1,000  Kr., 
but  is  less  than  2,000,  there  is  an  abatement  of  800  Kr. ; 
if  2,000  Kr.  and  over,  but  under  3,000,  600  Kr.  is  de- 
ducted and  if  over  3,000  Kr.  and  under  4,000,  the  de- 
duction is  400  Kr.  For  incomes  from  4,000  Kr.  to 
6,000  Kr.  (and  practically  to  6,100),  the  one  per  cent 
rate  applies  to  the  true  income  without  abatement  or  addi- 
tion. If  the  income  is  more  than  6,000  Kr.  that  portion 
which  exceeds 

6,000  Kr.,  but  not  10,000  Kr.  is  increased     50% 

100% 
150% 
200% 
250% 
300% 
400% 

The  application  of  these  rules  will  result  in  a  table  of 
1,446  grades  in  which  true  income  advances  100  Kr.  for 
each  grade,  while  the  actual  percentage  of  tax  to  true  in- 
come rises  from  2/10  of  one  per  cent  at  1,000  Kr.  to  4 
per  cent  at  145,500  Kr.  Above  the  last  mentioned  sum 
the  amount  of  tax  is  uniformly  proportional,  being  one 
per  cent  of  four  times  the  income,  which  is  equivalent  to 
a  flat  four  per  cent  rate. 

The  following  abbreviated  table  to  which  equivalents 
in  American  money  and  actual  percentage  of  tax  have 
been  added,  will  perhaps  suffice  to  show  the  general  plan  :7 


10,000 

1 

15,000  ' 

15,000 

< 

20,000  ' 

20,000 

' 

30,000  ' 

30,000 

« 

50,000  ' 

50,000 

< 

80,000  ' 

80,000 

7.  For  the  full  table,  which  fills  thirteen  closely  printed  pages, 
see  Sjaelfdeklaration,  by  Bodin  and  Palmgren.  Stockholm,  1909,  pp. 
203-215. 


SWEDEN 


191 


True 
Income 
Kroner 

Dollars  Cts. 

Assumed 
income  to 
which  1% 
rate  applied 

Percentage 
of  tax  to 
true  income 

Kronor 

1,000 

268.00 

200 

.2 

1,100 

294.80 

300 

.27 

1,200 

321.60 

400 

.33 

1,300 

348.40 

500 

.36 

1,400 

375.20 

600 

.43 

1,500 

402.00 

700 

.46 

1,600 

428.80 

800 

.5 

1,700 

455.60 

900 

.53 

1,800 

482.40 

1,000 

.55 

1,900 

509.20 

1,100 

.57 

2,000 

536.00 

1,400 

.7 

2,100 

562.80 

1,500 

.74 

2,200 

589.60 

1,600 

.72 

2,300 

616.40 

1,700 

.74 

2,400 

643.20 

1,800 

.75 

2,500 

670.00 

1,900 

.76 

2,600 

696.80 

2.000 

.77 

2,700 

723.60 

2,100 

.77 

2,800 

760.40 

2.200 

.78 

2,900 

777.20 

2,300 

.79 

3,000 

804.00 

2,600 

.86 

3,100 

830.80 

2,700 

.87 

3,200 

857.60 

2,800 

.87 

3,300 

884.40 

2,900 

.87 

3,400 

911.20 

3,000 

.88 

3,500 

938.00 

3,100 

.88 

3,600 

964.80 

3,200 

.89 

3,700 

991.60 

3,300 

.89 

3,800 

1,018.40 

3,400 

.89 

3,900 

1.045.20 

3,500 

.9 

4,000 

1,072.00 

4,000 

1 

4,100 

1,098.00 

4,100 

1 

4,200 

1,125.60 

4,200 

1 

and  so 

on  to 

6,000 

1,608.00 

6,000 

1 

6,100 

1,634.80 

6,100 

1 

6,200 

1,661.60 

6,300 

1.01 

6,300 

1,688.40 

6,400 

1.01 

6,400 

1,715.20 

6,600 

1.03 

6,500 

1,742.00 

6,700 

1.03 

and  so 

on  to 

25,000 

6,700.00 

49,500 

1.98 

and 

25,500 

6,834.00 

51,000 

2 

and 

65,500 

17,554.00 

194,500 

3 

and 

145,500 

38,994.00 

582,000 

4 

192  INCOME  TAXATION 

The  method  followed  in  constructing  the  table  may 
perhaps  need  some  explanation.  For  example,  with  an 
income  of  6,100  Kr.,  there  is  an  excess  over  6,000  Kr. 
of  100  Kr.  and  50%  of  this  would  be  50  Kr. ;  but  amounts 
of  less  than  100  Kr.  are  not  taken  into  consideration  and 
therefore  the  amount  taxed  is  6,100  Kr.  When  the  in- 
come is  6,200  Kr.  50%  of  the  200  Kr.  excess  would  be 
100  Kr.,  which,  added  to  6,200  would  make  6,300  Kr.  to 
be  taxed.  An  income  of  8,000  Kr.,  being  2,000  in  excess 
of  6,000  would  have  50%  of  2,000  or  1,000  Kr.  added 
to  it.  In  beginning  a  new  class  the  addition  is  made  to 
the  last  assumed  amount  in  the  preceding  class.  For  ex- 
ample, 10,000  Kr.  of  income  is  taxed  as  12,000  and 
10,100  Kr.  is  taxed  at  12,200  Kr.,  100%  of  the  excess 
over  10,000,  i.  e.,  100+100,  being  added— not  to 
10,000, — but  to  the  preceding  assumed  amount. 

The  administration  of  the  tax  does  not  present  any 
unusual  features.  Declarations  of  income  are  required 
from  all  persons  having  an  income  of  1,000  Kr.  or  who 
paid  income  tax  in  the  preceding  year  and  a  failure  to 
make  such  a  declaration  works  a  forfeiture  of  the  right 
to  appeal  from  the  assessment  made  by  the  officials. 
There  is  no  provision  for  collection  of  income  at  the 
source  and  no  differentiation  between  "earned"  and  "un- 
earned" incomes,  nor  between  persons  who  have  large 
families  and  those  who  have  not. 

Prior  to  1907  the  income  of  the  current  year  was 
taken  into  consideration,  but  the  law  was  amended  so  as 
to  require  the  return  to  give  the  income  for  the  preced- 
ing calendar  year.  In  1908  another  change  was  made, 
by  which  the  husband  was  no  longer  required  to  make  a 
return  of  his  wife's  income  as  if  it  were  a  part  of  his  own, 


SWEDEN  193 

but  the  wife  was  to  make  a  declaration  of  the  income  re- 
ceived from  her  separate  estate. 

The  results  of  the  two  taxes  from  a  financial  stand- 
point may  be  seen  from  the  following  statistics :  For 
the  year  1905,  the  amount  of  income  returned  was 
822,638,000  Kr.  which  was  reduced  by  sundry  exemp- 
tions to  704,210,000  Kr.  ($188,728,280).  The  assumed 
income  upon  which  the  tax  was  levied  in  accordance  with 
the  table  of  rates  was  1,268,269,000  Kr.  ($339,896,092). 
Of  the  total  income  there  was  derived 

from  capital   6.1% 

"      labor,  pensions,  etc 43.9% 

"      capital  and  labor  combined,  i.  e.,  com- 
mercial and  industrial  enterprises. .  .50    % 

The  value  of  the  agricultural  land  taxed  under  the 

"General  Supply"  law  was 2,601,117,000  Kr. 

and  of  other  real  estate 2,974,922,000    " 


being  a  total  of 5,576,039,000 

The  income  tax  proper  produced  in  1903  the  sum  of 
10,586,504  Kr.  ($2,837,183).  The  number  of  income 
taxpayers  was  194,963,  of  whom  191,515  were  private 
individuals,  789  public  bodies  and  2,659  companies  and 
banks.  It  thus  appears  that  one  person  in  27.26  of  the 
population  (5,221,291  at  that  time),  or  3.6%,  paid  in- 
come taxes.  According  to  the  budget  for  1905,  the 
amount  of  the  income  tax  was  12,682,694  Kr.  ($3,408,- 
962)  and  of  the  property  and  income  tax  or  "general 
supply"  10,090,232  Kr.  ($2,704,182). 

The  estimates  for  the  same  taxes  in  1907  were, 

Income  tax 12,600,000  Kr. 

Property  and  income  tax 10,000,000    " 


Total 22,600,000 


194  INCOME  TAXATION 

As  the  total  estimated  revenue  of  the  Kingdom  for 
the  same  year  was  193,383,000  Kr.,  the  two  taxes  con- 
tributed 11%  of  the  whole  amount. 

The  amount  produced  by  the  two  taxes  in  1908  was 
23,400,000  Kr.  and  in  1899,  26,000,000  Kronor.8 


SWITZERLAND 

The  income  taxes  which  have  been  levied  in  most  of 
the  cantons  for  more  than  half  a  century  have  taken  on 
so  many  different  forms  and  are  based  upon  such  widely 
divergent  theories  that  any  brief  and  intelligible  sum- 
mary of  them  would  be  impracticable.  It  is  proposed 
to  make  only  a  few  general  observations  regarding  them 
and  give  an  example  of  the  system  as  seen  in  one  of  the 
leading  cantons. 

Perhaps  the  most  notable  and  distinctive  feature  of 
the  cantonal  taxing  system  is  the  extent  to  which  the 
progressive  principle  is  applied  to  property  as  well  as  to 
income  taxes.  Seligman  has  classified  the  cantons  as 
follows : 

1.  Those  which  have  a  proportional  property  tax, 
but  a  progressive  income  tax. 

2.  Those  which  have  a  progressive  property  tax ;  and 

3.  Those  in  which  the  progressive  principle  is  ap- 
plied to  both  property  and  income. 

Most  of  the  cantons  also  distinguish  sharply  between 
earned  income  (unfundiertes  Einkommen),  (meaning 
thereby  income  not  derived  from  capital),  and  income 
from  investments,  conceding  a  lower  rate  to  the  former. 


8.    Svensk  Rikskalendar,  1909. 


SWITZERLAND 


'95 


A  curious  feature  of  the  Swiss  system  is  that  a  separate 
progressive  rate  is  often  applied  to  both  income  and  prop- 
erty and  as  the  rates  in  both  instances  are  lower  on  smaller 
amounts  it  may  happen  that  a  taxpayer  with  2,500  francs 
income  from  property  and  2,500  f ranees  from  labor  will 
pay  less  than  if  he  had  an  income  of  5,000  francs  either 
from  property  or  labor.  The  progression  is  accom- 
plished not  only  by  increased  rates  upon  larger  amounts, 
but  also  in  many  cases  by  additions  (Zuschlaege)  to  the 
higher  amounts  and  abatements  (Abzuege}  from  the 
lower  amounts. 

For  example,  in  the  Canton  of  Aargau,  if  the  amount 
of  taxes  which  one  is  required  to  pay  is  more  than  40  and 
less  than  70  francs  he  must  pay  five  per  cent  additional, 
and  if  more  than  70  and  less  than  100  francs  ten  per  cent, 
and  so  on  until  those  who  pay  over  500  francs  are  re- 
quired to  pay  a  supplemental  or  "super-tax"  of  thirty- 
three  per  cent.  As  an  instance  of  the  abatements  (French, 
degrevements} ,  may  be  cited  the  income  tax  of  the  Can- 
ton of  Zurich  which  falls  upon  only 

1/5  of  the  first  1,500  francs  of  income 
2/5  "       "    next  1,500       " 
3/5  "       "       "      3,000       " 
4/5  "       "       "      4,000       " 
while  all  above  4,000  fr.  is  reckoned  upon  the  full  amount. 

The  most  common  method  employed  in  Switzerland 
might  be  described  as  ad  valorem  taxation  of  property 
combined  with  a  tax  upon  that  part  of  income  which  is 
derived  from  labor.  This  system  is  followed  in  four- 
teen cantons,  viz. :  Zurich,  Lucerne,  Uri,  Obwalden,  Zug, 
Freiburg,  Schaffhausen,  Appenzell  A.  Rh.,  St.  Gall, 


196  INCOME  TAXATION 

Graubuenden,  Aargau,  Thurgau,  Waadt  and  Neuchatel.9 
In  four  of  the  cantons — Baselstadt,  Baselland,  Solothtirn 
and  Tessin — property  is  taxed  as  such  upon  its  value, 
and  all  income,  whether  derived  from  property  or  labor, 
is  subject  to  taxation.  The  result  is  that  productive  prop- 
erty is  reached  by  both  taxes  and  therefore  pays  a  double 
tax.  In  the  Canton  of  Schwyz  there  is  a  partial  income 
tax  which  applies  only  to  annuities  and  pensions.  There 
are  taxes  in  other  cantons  which  may  be  said  to  take  the 
place  of  income  taxes,  as  in  Geneva  and  Wallis,  where 
there  is  a  tax  on  industrial  capital  and  on  the  earnings  of 
all  professions  connected  with  science  and  arts  as  also  of 
certain  trades. 

In  regard  to  the  exemptions  for  the  minimum  of  sub- 
sistence a  variety  of  methods  has  been  adopted.  In  sev- 
eral of  the  cantons  heads  of  families  have  higher  exemp- 
tions than  single  persons  and  the  amount  varies  accord- 
ing to  the  number  of  children.  In  some  cases  the  exemp- 
tion is  much  larger  for  incomes  from  labor  than  for  in- 
comes from  capital.  The  average  exemption  on  an  in- 
come from  labor  for  an  unmarried  man  in  seventeen  can- 
tons appears  to  be  623  francs  ($120).  In  certain  can- 


9.  Perhaps  the  best  example  of  this  method  is  the  canton  of 
Waadt  (Vaud)  where  there  are  two  main  bases  of  taxation:  a.  for- 
tunes consisting  of  personal  property  and  b.  income  from  property 
and  labor.  Fortunes  are  assessed  by  a  progressive  scale,  the  grades 
being  25,000,  50,000,  100,000,  200,000,  400,000,  800,000  and  above 
800,000  francs  for  which  the  rates  rise  by  steps  of  l/2  per  cent  from 
1  per  cent  to  4  per  cent.  For  incomes  the  scale  is 

1  franc    to      1,250  francs 1     % 


1,251  francs  2,500 

2,501        "  5,000 

5,001        "  10,000 

10,001        "  20,000 

20,001        "  40,000 

40^001       "  and  over 4    % 

See  Graduated  Taxation  in  the  canton  de  Vaud  by  W.  B.  Duf- 
field,  in  Westminster  Review,  Vol.  144,  (Oct.,  1895)  pp.  401-408. 


.2  % 
.234% 
.3  % 
.354% 


SWITZERLAND 


197 


tons,  as  in  Zurich,  the  exemption  applies  to  all  incomes, 
regardless  of  their  amount;  in  others  it  is  only  available 
for  incomes  below  a  certain  sum,  and  all  incomes  above 
that  sum  are  assessed  in  full. 

The  rates  are  progressive  in  most  of  the  cantons  and 
in  Baselstadt,  Schaflhausen,  Graubuenden,  Lucerne  and 
Zurich  the  rate  for  each  grade  or  step  in  the  progression 
applies  only  to  the  income  in  that  grade  and  not  to  the 
income  in  the  preceding  grades. 

The  differentiation  in  favor  of  labor  incomes  is  seen 
in  the  fact  that  the  average  amount  of  tax  in  twenty  can- 
tons on  an  income  of  $800  derived  from  labor  would  be 
$15.00;  while  the  average  tax  on  property  worth  $20,000 
which  at  4%  would  yield  an  income  of  $800,  would  be 
$32.00. 

As  already  intimated  it  would  lead  too  far  to  attempt 
a  full  description  of  the  methods  of  taxing  incomes  in 
each  of  the  Swiss  cantons;  but  a  brief  account  of  the  sys- 
tem adopted  in  the  half-canton  of  Baselstadt  may  be  of 
interest.10  This  canton  is  selected,  not  because  it  is  in  any 
sense  typical,  but  because  the  writer  resided  for  some 
years  in  Basel,  and,  having  been  assessed  for  income  tax, 
had  his  attention  called  to  the  system  then  in  vogue. 

The  tax  upon  income  and  earnings  (Einkommens- 
und  Erzverbssteuer)  in  the  canton  of  Baselstadt  is  levied 
upon  all  persons  residing  in  the  canton  subject  to  its  pro- 


10.  Baselstadt  consists  of  the  city  of  Basel  and  three  small  vil- 
lages on  the  right  bank  of  the  Rhine.  Population  in  1887-1888,  the 
period  to  which  pur  statistics  relate,  73,749.  Baselstadt  should  not 
be  confounded  with  Basselland,  the  other  half-canton.  The  amount 
of  income  tax  raised  in  Baselstadt  in  1900  was  much  larger  than  in 
any  other  canton  and  constituted  nearly  one  third  of  the  whole 
amount  raised  in  the  Swiss  Confederacy.  Cf.  Reports  from  His 
Majesty's  Representatives  Abroad,  etc.  (1905)  p.  87. 


198  INCOME  TAXATION 

visions  and  also  on  non-residents  having  property  or  busi- 
ness in  the  canton  which  yields  income. 
Exempt  from  the  tax  are 

1.  Single  persons  whose  incomes  do  not  exceed  1,200 
francs. 

2.  Married  people  who  keep  house  and  widowers 
living    with    their    minor    (unerwachsene ,    literally    not 
grown  up)  children,  providing  that  the  income  in  either 
case  does  not  exceed  1,500  francs. 

3.  Widows,  with  minor  children,  whose  income  does 
not  exceed  1,800  francs. 

4.  Female  housemaids    and    servants  who  are  not 
members  of  the  households  of  their  employers. 

5.  Persons  who  are  public  charges. 
The  income  tax  is  reckoned  as  follows : 
A  fixed  tax  of  8  francs  is  payable  by 

a)  Each  person  receiving  an  income  of  from  1,200 
to  1,500  francs. 

b)  Married  people  having  their  own  households  and 
widowers  living  with  their    minor    children,  providing 
that  in  either  case  their  incomes  are  from  1,500  to  1,800 
francs. 

c)  Widows  supporting  minor  children  and  having 
incomes  of  between  1,800  and  2,400  francs. 

Taxpayers  who  do  not  belong  to  the  above  classes 
are  liable  to  pay 

upon  income  up  to  4,000  francs  1% 

"  excess  above  4,000  "  up  to  8,000  francs  2% 

"  "  8,000  "  "  "  12,000  "  3% 

on  all  above  12,000      "       4%" 


".  This  was  the  law  in  1888,  but  it  has  been  changed  so  that  in 
1897  the  4%  rate  applied  only  to  the  incomes  between  12,000  and 
16,000  francs  and  all  above  16,000  francs  was  taxed  5%. 


SWITZERLAND 


199 


It  is  provided  that  there  may  be  deducted  from  gross 
income  the  interest  on  borrowed  capital,  wages  to  em- 
ployees and  other  necessary  business  expenses  including 
losses  of  capital  during  the  year.  On  the  other  hand 
taxes,  household  and  similar  personal  expenses  can  not 
be  deducted.  If  a  taxpayer  owns  the  house  in  which  he 
lives  the  rental  value  of  the  house  is  to  be  added  to  his 
income.12  In  the  case  of  corporations,  they  were  re- 
quired, by  a  law  of  March  13,  1902,  to  pay  a  tax  of  1l/2 
per  mille  on  their  paid  in  capital,  ^  per  mille  on  capital 
not  paid  in  and  1^  per  mille  on  their  net  profits. 

The  municipal  income  tax  of  the  city  of  Basel  is  levied 
upon  every  inhabitant  over  twenty  years  of  age  except 
students,  from  without  the  city,  female  house  servants 
and  paupers.  Taxpayers  are  divided  by  the  Tax  Com- 
missioner upon  the  basis  of  their  average  gross  income 
into  the  following  classes  i1 


Approximate 

Income 

equivalent 

Tax  (in 

Class       (in  francs) 

in  dollars 

francs) 

Percentage 

1.         800  to   1,200 

160  to   240 

6 

.75  to  .5 

2.  Over   1,200 

1,500 

240 

300 

8 

.66 

.53 

3. 

1,500 

2,200 

300 

440 

12 

.8 

.54 

4. 

2,200 

3,000 

440 

600 

20 

.9 

.66 

5. 

3,000 

4,000 

600 

800 

28 

.93 

.7 

C. 

4,000 

6,000 

800 

1,200 

40 

1. 

.66 

7. 

6,000 

10,000 

1,200 

2.000 

68 

1.13 

.68 

8. 

10,000 

15,000 

2,000 

3,000 

120 

1.2 

.8 

9. 

15,000 

20,000 

3,000 

4.000 

180 

1.2 

.9 

10. 

20,000 

30,000 

4,000 

6.000 

280 

1.4 

.93 

11. 

30,000 

40,000 

6,000 

8,000 

400 

1.33 

1. 

12. 

40,000 

60,000 

8,000 

12.000 

600 

1.5 

1. 

13. 

60,000 

100,000 

12,000 

20,000 

1,000 

1.66 

1. 

14. 

100,000 

150,000 

20,000 

30,000 

1,600 

1.6 

1.06 

15. 

150,000 

200,000 

30,000 

40,000 

2,400 

1.6 

1.2 

16. 

200,000 

40,000 

3,000 

1.5 

12.  Instead  of  adopting  this  simple  provision,  the  income  tax  of 
1864  in  the  United  States  exempted  the  amount  paid  for  rent  of  a 
home,  the  idea  in  each  case  being  to  place  the  man  who  rented  a 
house  on  an  equal  footing  with  the  man  who  owned  the  house  in 
which  he  lived. 

13.  For  the  convenience  of  our  readers  we  have  added  to  the 
original   table  the    approximate    amounts   in   American   money   and 
have  computed  the  percentages. 


2OO  INCOME  TAXATION 

It  will  be  seen  that  the  above  rates  are  occasionally 
regressive  as  between  classes,  and  that  in  every  class  the 
smaller  incomes  pay  a  larger  per  cent  than  the  higher  in- 
comes. The  incomes  are  assessed  every  four  years  by  a 
tax  commission  which  in  certain  cases  may  employ  ex- 
perts, and  retaxation  is  made  to  meet  certain  con- 
tingencies. The  amount  of  tax  is  assessed  and  payable 
quarterly.  It  appears  from  recent  statistics  that  in  1903 
about  5  per  cent  of  those  who  paid  income  tax  were  in 
receipt  of  more  than  one-half  of  the  total  income,  and — 
what  is  quite  unusual — the  bulk  of  the  tax  is  paid  by 
those  having  relatively  high  incomes.  In  other  words, 
three-fourths  of  the  tax  is  paid  by  persons  having  more 
than  16,000  francs  ($3,200)  of  income.14  The  three 
forms  of  taxation  are  not  exclusive  of  and  supplementary 
to  each  other  as  in  most  of  the  other  cantons,  but  overlap 
in  such  a  manner  that  it  was  estimated  in  1887,  that  a 
fourth  of  the  whole  total  income  of  the  canton  paid  three 
taxes  and  more  than  a  fifth  two  taxes.15 

As  to  the  financial  results,  little  is  known  as  most  of 
the  cantons  do  not  preserve  or  publish  statistics  as  to  the 
amount  collected  and  the  number  of  taxpayers.  The  re- 
ceipts from  income  taxes  in  eighteen  cantons  for  the  year 
1900  were  approximately  as  follows: 


14.  See    Basel's    Staatseinnahmen  und   Steuervertheilung  1888- 
1903,  published  by  the  Statistical  Department  of  the  Canton  of  Basel- 
stadt  in  1905. 

15.  For  a  very  full  account  of  the  taxing  system  of  Switzerland 
in  general  and  the  income  tax  in  particular,  see  Schanz,  Die  Steuern 
der  Schweiz,  in  five  volumes,  1890.     See  also  Handwoerterbuch  der 
Staatswissenschaften,  Band   III,  3te  Auflage,  1909,  p.  753.     Income 
and  Property  Taxes  in  Switzerland,  by  Prof.  Gustav  Cohn,  Political 
Science  Quarterly,  Vol.  IV,  No.  1,  p.  37. 


SWITZERLAND  2OI 


Appenzell  A.  Rh 

5,158  francs  St.    Gall 

Aargau 

44,767 

Schaffhatisen 

Baselland 

27,566 

Solothurn 

Baselstadt 

751,700 

Thurgau 

Berne 

544,549 

Tessin 

Freiburg 

25,870 

Wallis 

Graubuenden 

43,390 

Waadt 

Lucerne 

24,062 

Zurich 

Neuchatel 

68,562        '       Zug 

The  total  amount  as  shown  above  was  $2,449,364, 
while  the  sum  collected  from  property  taxes  for  the  same 
year  was  $4,003,205,  which  would  indicate  that  the  in- 
come tax  contributed  about  38  per  cent  of  the  total 
amount  raised  by  taxation. 

In  the  Canton  of  Zurich,  according  to  Dr.  Steiger,10 
the  taxation  of  incomes  was  so  severe  that,  in  the  year 
1900,  no  less  than  8,493  taxpayers  lodged  appeals  with 
the  Appellate  Commission.  The  same  authority  estimated 
that  from  30  to  50  per  cent  of  taxable  capital  is  concealed 
from  the  authorities  and  that  the  annual  loss  to  the  Can- 
ton, in  the  years  1870  to  1894,  was  about  $400,000  from 
this  cause  alone. 

It  is  quite  common  for  speakers  and  writers  in  the 
United  States  to  refer  to  the  income  tax  of  the  Swiss 
Republic  as  a  shining  example  of  what  great  things  can 
be  accomplished  by  such  a  tax  among  a  free  and  en- 
lightened people.  But  they  overlook  the  fact  that  the 
Swiss  Republic,  as  such,  levies  no  income  tax;  that,  of 
the  25  cantons,  five  do  not  have  any  income  tax,  twelve 
have  only  a  partial  tax,  based  chiefly  on  earnings,  and 
only  four  have  a  general  income  tax.  It  should  be  re- 
membered too  that  Switzerland  has  less  than  one-third 
the  area  of  the  State  of  Wisconsin,  while  its  population 
is  fifty  per  cent  greater.  But,  in  spite  of  its  compactness, 


16.     Steiger,  J.   Grundzuege  des   Finanzhaushaltes  der  Kantone 
und  der  Gemeinden,  2  Teile,  Berne,  1903. 


2O2  INCOME  TAXATION 

which  might  be  thought  favorable  to  uniformity,  there  is 
the  greatest  diversity  in  the  methods  by  which  the  tax  is 
administered  and,  as  a  result,  the  whole  system  is  com- 
plex and  confused.  No  two  cantons  levy  the  same  rate 
or  apply  the  same  principle  of  classification.  Some  ex- 
empt a  minimum  of  existence  and  some  not;  some  in- 
crease the  progression  by  abatements  and  some  by  addi- 
tions or  a  super-tax;  some  have  high  rates  and  others 
low;  and  altogether  one  finds  himself  in  such  a  maze  of 
contradictory  and  conflicting  methods  that  he  may  well 
pause  before  quoting  the  so-called  "Swiss  Income  Tax" 
as  a  model. 


CHAPTER  XL 


INCOME  TAXES  IN  AMERICAN  COLONIES 
AND  STATES. 


INCOME  TAXES  IN   THE  COLONIES. 

The  beginning  of  the  income  tax  in  America  may  be 
found  in  the  so-called  "faculty  taxes,"  or  perhaps  at  a 
still  earlier  period  in  certain  taxes  which  were  levied  on 
produce.  The  word  faculty  was  used  somewhat  in  the 
sense  of  '"'ability  to  pay."1  It  is  true  that  income  (except 
in  the  case  of  salaries),  was  not  taken  to  be  the  sole  index 
of  ability  to  pay,  but  the  amount  of  property  owned  by 
the  individual  was  also  considered.  Under  these  circum- 
stances the  question  naturally  arises  whether  or  not  such 
taxes  could  properly  be  called  income  taxes.  Professor 
Seligman  is  of  the  opinion  that  they  could  not  and  has 
expressed  his  views  as  follows : 


*.  Faculty  ("das  Maas  der  Steuerkraft")  the  measure  of  tax- 
paying  ability)  has  been  defined  as  "the  whole  amount  of  income  re- 
maining to  the  taxpayer  (after  deducting  the  expense  of  its  produc- 
tion) which  can  be  demanded  for  purposes  of  taxation  with  due  re- 
gard for  his  standard  of  living.  Von  Scheel,  Die  progressive  Be- 
steuerung,  in  Zeitschrift  fuer  die  gesammte  Staatswissenschaft,  Vol. 
31,  p.  284,  1875.  This  definition  looks  wholly  to  income.  A  broader 
definition,  though  somewhat  vague,  is  "the  sum  of  the  economic 
conditions  which  tend  to  make  it  possible  or  easy  to  get  together  the 
tax."  R.  Meyer,  Die  Principien  der  gerechten  Besteiierung,  p.  311, 
1883. 


2O4  INCOME  TAXATION 

The  points  which  I  desire  to  emphasize  here  are  that 
these  faculty  taxes  were  not  direct  income  taxes  at  all ;  that 
they  were  simply  an  addendum  to  the  early  land  taxes, 
originally  levied  on  product;  and  that  with  the  change  of 
the  taxes  on  product  into  taxes  on  property  these  faculty 
taxes  gradually  fell  into  disuse.  To  call  them  income  taxes 
is  a  misnomer.  Income  taxes  in  the  modern  sense  were 
levied  for  the  first  time  in  England  in  1799,  and  it  was  at  a 
considerably  later  period  that  they  spread  to  other  countries. 
To  claim  then,  that  our  colonial  taxes  on  faculty  were  in- 
come taxes  betrays  a  confusion  of  thought  and  an  ignorance 
of  economic  distinctions.  The  faculty  tax  had  its  origin  in 
the  same  motives  that  have  led  to  the  introduction  of 
modern  income  taxes,  but  it  was  not  an  income  tax,  just  as 
the  French  land  tax  and  the  German  Lohnsteuer  of  today, 
levied  on  the  produce  of  land  and  of  industry  respectively, 
are  not  income  taxes.  The  distinction  between  real  taxes 
on  product,  on  the  one  hand,  and  personal  taxes,  or  taxes 
on  income,  on  the  other  hand,  is  one  of  fundamental  im- 
portance in  the  science  of  finance.  To  disregard  it  can  only 
bring  confusion.  To  observe  it  will  enable  us  to  explain 
what  is  otherwise  inexplicable  in  American  economic  his- 
tory.2 

On  the  other  hand,  Doctor  Kinsman,  who  has  made  a 
thorough  study  of  these  taxes  makes  the  following  dis- 
tinction : 

The  essential  point  in  which  the  faculty  tax  differed 
from  the  later  income  tax  was  in  the  method  of  assess- 
ment. As  a  rule  the  faculty  tax  was  an  estimated  tax, 
whereas  the  income  tax  proper  has  been,  in  theory  at 
least,  a  tax  upon  the  actual  income  of  individuals.  The 
most  superficial  examination  reveals  the  fact  that  the 


2.     Political  Science  Quarterly,  Vol.  X  (June,  1895),  p.  247. 


AMERICAN  COLONIES 


2O5 


faculty  tax  underwent  an  important  evolution  in  the 
colonial  period,  developing  from  a  vague,  indefinite  effort 
to  tax  personal  ability  to  a  definite,  well-defined  tax  directed 
against  income  from  wages  and  profits.3 

The  whole  question  is  one  of  nomenclature  and  could 
perhaps  be  settled  by  calling  the  faculty  taxes  partial  in- 
come taxes.  In  any  case,  it  is  quite  evident  that  most  of 
the  state  income  taxes  thus  far  levied  were  based  upon, 
and  found  their  beginnings  in,  the  faculty  taxes  of 
colonial  times. 

In  Massachusetts,  as  early  as  1634,  there  was  enacted 
a  law  that  "in  all  rates  and  public  charges  the  towns 
should  have  respect  to  levy  every  man  according  to  his 
estate,  and  with  consideration  of  all  other  his  abilities 
whatsoever  and  not  according  to  the  number  of  his  per- 
son." This  law  was  gradually  made  more  explicit  and 
comprehensive  until  in  1646  it  provided  that  certain 
tradesmen  should  be  rated  according  to  their  "returns  and 
incomings,"  "proportionable  to  the  product  of  the  estates 
of  other  men."  Upon  the  union  of  the  colonies  in  1692  it 
was  provided  that  real  and  personal  property  should  be 
taxed  according  to  its  yearly  "value  or  income"  and  in 
1695  the  tax  upon  handicraftsmen  was  fixed  at  "4  pence 
on  the  pound  for  his  income."  It  will  be  seen  that  the 
tax  of  this  period,  although  not  of  universal  application, 
contained  all  the  essential  elements  of  a  proportional  in- 
come tax.  In  1738  a  certain  flexibility  was  given  to  the 


3.  Delos  O.  Kinsman.  The  Income  Tax  in  the  Commonwealths 
of  the  United  States.  Publications  of  the  American  Economic  As- 
sociation. Nov.,  1903.  This  excellent  little  book  represents  a  great 
amount  of  original  research  and  we  are  indebted  to  it  in  large  meas- 
ure for  the  facts  given  in  this  chapter.  See  also  Seligman's 
valuable  article  on  The  Income  Tax  in  the  American  Colonies  and 
States  in  Vol.  10,  Political  Science  Quarterly,  June,  1895. 


2O6  INCOME  TAXATION 

operation  of  the  tax  by  a  requirement  that  "the  income 
or  profit  received  from  any  trade,  faculty,  business  or 
employment  whatsoever,  and  all  profits  which  may  or 
shall  arise  by  money  or  other  estate  not  particularly 
otherwise  assessed,  or  commissions  of  profit  in  their  im- 
provement, according  to  their  understanding  and  cun- 
ning should  be  taxed  at  one  penny  on  the  pound  to  abate 
or  multiply  the  same,  if  needs  be,  so  as  to  make  up  the 
sum  hereby  set  and  ordered  for  such  town  or  district  to 
pay."  It  is  quite  possible  that  this  provision  for  the 
variability  of  the  rate  according  to  necessity  marks  the 
origin  of  a  principle  which  is  a  prominent  feature  of  the 
English  income  tax.  The  exclusion  of  estate  "other- 
wise assessed"  is  still  a  feature  of  the  Massachusetts  law 
which  no  doubt  furnishes  a  convenient  loop-hole  of  escape 
for  a  great  amount  of  property,  and  accounts  in  a  meas- 
ure for  the  acknowledged  inefficiency  of  this  legislation. 
It  will  be  noted  that  the  rate  of  taxation  on  incomes  was 
sometimes  different  from  the  rate  on  other  property. 
For  example,  in  1778,  the  assessors  were  required  to  take 
into  consideration  the  wray  in  which  the  income,  or  profit, 
was  made  and  to  assess  it  at  such  a  rate  as  they  judged  to 
be  just  and  reasonable,  provided  they  did  not  assess  such 
income  or  profit  at  more  than  five  times  the  amount  in 
other  kinds  of  estates.  It  is  an  interesting  fact  that  the 
Massachusetts  income  tax  law  of  1780  has  continued  in 
force  without  any  very  material  modification  to  the  pres- 
ent time.  It  is  unfortunate  that  the  amounts  collected 
from  incomes  in  the  Massachusetts  colony  cannot  be 
known  owing  to  the  fact  that  they  were  blended  with 
other  taxes. 


Connecticut  adopted  the  law  of  Massachusetts  Bay  in 
1649.  The  law  was  amended  from  time  to  time  and  in 
1771  was  made  to  apply  to  "all  traders  by  wholesale, 
tradesmen,  artificers,  tavern  keepers  and  others  by  law 
rateable  on  account  of  their  faculty  or  business."  It 
should  be  noted  that  the  tax  gradually  came  to  be  in  lieu 
of,  rather  than  supplemental  to,  the  property  tax.4  Real 
estate  was  rated  not  according  to  its  value,  but  in  propor- 
tion to  the  annual  income,  which,  on  the  average,  it  was 
deemed  likely  to  produce.  Land  was  put  into  the  list  at 
a  fixed  rate  for  each  kind,  not  because  these  sums  were 
deemed  to  be  the  value  of  the  land,  but  because  they  were 
thought  to  represent  the  average  income  which  it  would 
produce."5 

The  law  was  repealed  in  1819.  It  is  to  be  regretted 
that  the  principle  which  it  embodied  of  taxing  land  ac- 
cording to  its  productivity  rather  than  according  to  its 
mere  selling  value  was  abandoned  and  not  elaborated  as 
it  might  have  been. 

In  Rhode  Island  the  first  attempt  to  levy  a  faculty  tax 
seems  to  have  been  made  in  1673  when  it  was  provided 
that  taxes  ought  to  be  assessed  not  alone  according  to 
property,  but  also  according  to  the  "faculty,"  or  "profits 
and  gains"  of  individuals.  The  rate  on  merchants  and 
tradesmen  was  assessed  "according  to  the  yearly  profit." 
As  late  as  1744  assessors  were  required  to  "consider  all 
persons  who  made  profits  by  their  faculties  and  rate  them 
accordingly."  But  the  law  does  not  seem  to  have  been 
very  effective.  It  finally  fell  into  entire  disuse — probably 
about  1750. 


American  State  Papers.    Finance,  Vol.  1,  p.  423. 
Report  of  Connecticut  Tax  Commission  of  1887. 


2O8  INCOME  TAXATION 

New  Hampshire  had  about  the  same  experience  with 
the  tax  as  Rhole  Island.  In  1719  the  selectmen  were  au- 
thorized to  assess  inhabitants  "according  to  their  known 
ability  and  estate ;"  but  the  law  became  a  dead  letter  and 
it  does  not  appear  in  the  tax  law  of  1794. 

Vermont.  From  1779,  until  it  became  a  state.  Ver- 
mont had  a  law  which  taxed  attorneys  at  law,  tradesmen, 
traders  and  artificers  "proportionable  to  their  gains  and 
returns." 

Virginia,  although  late  in  its  adoption  of  the  faculty 
or  income  tax,  seems  to  have  profited  somewhat  by  the 
experience  of  other  colonies  and  its  first  law  in  1777  was 
evidently  framed  with  some  care.  It  required  assessors 
not  only  to  assess  all  real  and  personal  property,  but  also 
to  obtain  from  each  taxable  person  (except  military 
officers)  a  sworn  statement  of  the  amount  received  from 
interest  and  also  of  the  amount  received  from  salaries 
and  fees.  Each  taxpayer  was  required  to  keep  a  distinct 
account  of  his  "neat  income."  The  tax  amounted  at  first 
to  t\vo  shillings  on  the  pound  (10%)  on  interest  and  ten 
shillings  on  each  hundred  pounds  (.005%)  on  salaries. 
The  law  was  to  remain  in  force  for  seven  years,  but  the 
amount  realized  from  the  tax  the  first  year  wras  so  small 
that  the  rates  were  raised  to  four  shillings  on  the  pound 
for  annuities  and  twenty  shillings  for  every  hundred 
pounds  of  the  "neat  income  of  all  offices  of  profit."  This 
amendment  to  the  law  was  to  be  in  force  for  six  years; 
but,  when  the  revenue  laws  of  the  state  were  revised  in 
1782,  the  taxes  on  income  were  omitted  with  the  excep- 
tion of  a  tax  of  clerks  for  courts  of  one-third  their  fees, 
which  was  repealed  in  1790. 


STATE  INCOME  TAXES  2O9 

South  Carolina  has  had  a  long  experience  with  the 
income  tax.  The  original  law  of  1701  was  changed  in 
1703  so  as  to  apply  to  "estates,  goods,  merchandise, 
stocks,  abilities,  offices  and  places  of  profit."  In  1758  the 
law  was  changed  so  as  to  require  store-keepers,  as  well  as 
physicians  and  surgeons  to  be  taxed  "for  their  stock  and 
trade  and  the  profits  of  their  professions  at  the  rate  of 
eighteen  shillings  for  every  one  hundred  pounds  (0.9%) 
upon  the  full  value  of  their  profits."  In  1760  the  law 
was  again  amended  so  as  to  provide  for  a  tax  of  "six 
pence  per  cent"  (254%),  "on  the  profits  of  all  faculties, 
professions  (except  the  clergy)  factorage  and  handicraft 
trades  throughout  the  province  to  be  ascertained  and 
rated  by  the  several  assessors  and  collectors  according  to 
the  best  of  their  knowledge  and  information." 

The  law  remained  in  this  form  until  the  adoption  of 
the  first  constitution  in  1776. 


STATE  INCOME  TAXES. 

There  is  a  surprisingly  large  number  of  people, 
especially  in  the  western  and  central  portions  of  the 
United  States  who  are  disposed  to  look  at  a  state  income 
tax  as  a  newly  discovered  and  highly  promising  measure 
of  fiscal  reform.  To  some  such  it  may  come  as  a  surprise 
to  learn  that  income  taxes  in  almost  every  imaginable 
form  have  been  tried  for  many  years  in  some  of  the  east- 
ern and  southern  states.  The  following  is  a  rough  sum- 
mary of  the  periods  for  which  income  taxes,  in  some 
form  or  other,  have  been  in  force  in  twenty  of  the  states, 
the  colonial  and  statehood  periods  being  combined : 


2IO  INCOME  TAXATION 

State  from  to 

Alabama  1844  1884 

Connecticut  1649  1819 

Delaware  1869  1871 

Florida  1845  1855 

Georgia  1863  1866 

Kentucky  (as  to  U.  S.  Bonds)         1867  1871 

Louisiana  1865  1910 

Maryland  1842  1850 

Massachusetts  1843  1910 

Missouri  1861  1866 

North    Carolina  1849  1910 

Oklahoma  1908  1910 

Pennsylvania  1841  1871 

Rhode  Island  1673  1750  (?) 

South  Carolina  1838  1868 

1898  1910 

Tennessee  (as  to  U.  S.  Bonds)        1883  1910 

Texas  1863  1871 

Vermont  1777  1782 

"  1778  1850 

Virginia  1843  1910 

West  Virginia  1863  1864 

(Where  the  year  1910  is  given  above,  the  intention  is  to  state 
that  the  law  is  not  yet  repealed.) 

It  would  lead  too  far  to  attempt  to  review  in  detail 
the  experiences  of  all  these  states  and  only  an  outline  of 
the  methods  adopted  and  results  obtained  will  be  given. 

"Alabama.  The  income  tax  law  of  this  state  began 
about  1844  with  a  tax  of  one-half  of  one  per  cent  on  the 
incomes  of  certain  professional  and  salaried  men.  In 
1848  the  rate  was  raised  to  one  per  cent  and  the  scope  of 
the  act  somewhat  extended.  On  the  whole  however  it 
could  hardly  be  called  a  general  income  tax  until  1862, 
when  it  was  made  to  include  a  tax  of  five  per  cent  on  the 
"net  profits"  of  many  forms  of  business  and  ten  per  cent 
upon  the  wages  and  salaries  of  certain  men  exempt  from 
military  service.  The  law  contained  the  usual  provision 
that  persons  failing  or  refusing  to  furnish  a  written  state- 
ment under  oath  of  their  receipts,  salaries,  commissions 
and  profits  should  be  liable  to  fine  or  imprisonment  or 
both.  In  1864  the  rates  were  raised  and  in  1866  a  gen- 


ALABAMA  211 

eral  provision  was  incorporated  in  the  law  to  the  effect 
that  "a  tax  of  one  per  cent  be  levied  upon  the  annual 
gains,  profits,  salaries  and  income  in  excess  of  $500  re- 
ceived by  any  person  within  the  State."     In  1868  the 
amount  exempted  from  the  tax  was  raised  to  $1,000,  but 
in  1875  it  was  lowered  to  $500.     The  rate,  which  had 
been  raised  to  three-fourths  of  one  per  cent  was  reduced 
in  1881  to  65  cents  on  each  $100  and  the  exemption, 
which  had  been  dropped  in  1876,  was  restored  and  fixed 
at  $800.     The  working  of  the  law  however  was  so  un- 
satisfactory that  in  1883  the  report  of  the  State  Auditor 
in  recommending  its  repeal  used  the  following  language : 
"Taxes  upon  salaries,  gains,  incomes  and  profits  are  re- 
garded with  disfavor  by  almost  every  taxpayer,  no  mat- 
ter how  willing  he  may  be  to  contribute  his  part  to  the 
support  of  the  government  of  the  state.     Such  taxes  are, 
in  the  very  nature  of  things,  attained  by  processes  in- 
quisitorial in  character  and  therefore  to  most  persons  ex- 
ceedingly obnoxious.     In  addition  to  this  the  law  au- 
thorizing them  has  never  been  and  probably  never  will 
be  properly  executed    and    consequently    does  not  bear 
equally  alike  upon  all.     *    *    *    I  do  not  hesitate,  there- 
fore, to  give  it  as  my  opinion  that  it  should  be  repealed." 
In  1884  the  legislature  passed  an  act  requiring  assessors 
in  each  county  to  levy  the  tax  due  upon  salaries,  profits 
and  incomes  that  had  escaped  at  any  time  during  the  pre- 
ceding ten  years,  thus  affording  another  instance  of  the 
naive  manner  in  which  legislatures  expect  to  accomplish 
practical  impossibilities  by  merely  passing  a  law.     The 
attempt  to  tax  incomes  was  finally  abandoned  in  1884, 
although  there  are  certain    taxes    upon    gross    incomes 
which  have  been  retained  and  which  are  near  the  border 


Year 

Income  Tax 

Total  State  Tax 

1870 

$11,547.16 

$1,122,785.45 

1872 

8,269.07 

767,193.38 

1875 

3,778.54 

459,263.59 

1879 

8,109.46 

790,000.00 

1880 

9,078.39 

521,346.32 

1881 

11,705.48 

620,805.81 

1882 

22,115.93 

659,044.10 

1883 

14,362.59 

610,782.18 

1884 

11,532.35 

678,421.54 

212  INCOME  TAXATION 

line  between  income  taxes  and  licenses.  The  following 
table  compiled  from  the  Auditor's  Reports  for  the  re- 
spective years  (by  Doctor  Kinsman),  shows  the  amount 
of  the  tax  upon  incomes  compared  with  the  total  state 
tax.  We  have  added  the  percentage  which  the  income 
tax  bore  to  the  total  tax. 

Percentage 

1.  % 
1.07% 

.8  % 

1.  % 

1.7  % 

1.8  % 
3.3  % 
2.3  % 
1.7  % 

The  bulk  of  the  tax  was  always  raised  in  the  two 
chief  cities  in  the  state  and  during  the  last  four  years 
that  the  tax  was  in  force  an  average  of  only  48  out  of  the 
66  counties  in  the  state  levied  any  income  tax. 

Delaware.  This  state  had  a  partial  income  tax  from 
1869  to  1871,  consisting  of  a  tax  of  two  per  cent  upon 
the  income  from  salaries  or  fees  received  by  lawyers, 
physicians  and  all  state  and  county  officers,  and  upon  the 
gross  receipts  of  private  bankers,  brokers  and  real  estate 
agents  by  way  of  commissions,  profits,  brokerage  or 
other  compensation  for  business  transacted.  In  1871  the 
law  was  repealed  and  a  license  tax  substituted. 

Florida.  In  1845  a  tax  amounting  to  one-fifth  of  one 
per  cent  was  levied  upon  the  income  of  lawyers,  doctors, 
public  weighers  of  cotton  and  other  produce,  public  in- 
spectors and  pilots,  and  in  1850  a  tax  of  two  per  cent  was 
levied  upon  the  commissions  of  commission  merchants 
and  factors.  The  amounts  collected  under  this  law  were 
insignificant  and  it  was  repealed  in  1855. 

Georgia.  The  experience  of  this  state  is  quite  in- 
teresting, because  of  the  large  amount  which  was  raised — 


GEORGIA 


213 


an  amount  far  in  excess  of  that  which  has  ever  been 
raised  by  any  other  state;  but  the  tax  was  essentially  a 
war  tax  and  it  was  dropped  soon  after  the  war  was  ended. 
The  law,  as  introduced  early  in  the  year  1863  at  an  extra 
session  of  the  legislature,  was  designed  to  provide  pen- 
sions for  dependent  widows  and  orphans  of  soldiers  and 
to  provide  for  the  support  of  disabled  soldiers  of  the 
Confederate  army.6  It  was  strictly  a  tax  upon  profits 
and  the  returns  were  required  to  show  the  capital  invested 
as  well  as  the  amount  of  profit.  If  the  net  profit  or  in- 
come equaled  twenty  per  cent  of  the  capital  invested  a 
tax  of  one-half  of  one  per  cent  was  levied.  If  the  income 
was  between  20  and  30  per  cent  the  rate  was  1^  per  cent 
and  it  then  increased  at  a  regular  ratio ;  but  the  law  was 
modified  in  December  of  the  same  year  so  as  to  require 
the  following  scale  of  rates  : 


If  the  net  income  or  profits, 
above  8%  of  the  capital  stock, 
amounted  to 


If  between 


above 


$  10,000  or  less 

10,000  and  15,000 

15,000  20,000 

20,000  30,000 

30,000  50,000 

50,000  75,000 

75,000  100,000 

100,000 


The 
rate 
of 

tax  was 

5.  % 

7.5% 

10.  % 

12.5% 

15.  % 

17.5% 

20.  % 

25    % 


6.  This  law  will  be  found  on  page  176  of  Laws  of  Georgia, 
passed  November  and  December,  1862,  and  March  and  April,  1863. 
The  full  rates  were : 

Profits   of  20% 0.5  % 

over  20%  to  30%  or  under 1.5  % 


30% 

40% 
50% 
60% 
70% 
80% 
90% 


40%;  ' 

50%  " 

60%  " 

70%  " 

80%  " 

90%  " 

100%  " 


2.  % 

.2.5% 
.3.  % 
.3.50%; 
.4.      % 
.4.50% 
.5.     % 


"and  so  on  in  the  same  ratio  of  per  cent  profit  and  taxation  ad  in- 
finitum."  It  is  probable  that  the  taxes  of  1863  were  collected  under 
this  law  as  the  second  law  was  not  "assented  to"  until  Dec.  14,  1863. 


214  INCOME  TAXATION 

The  somewhat  drastic  provision  was  added  that  any 
person  failing  to  comply  with  the  provisions  of  the  act 
was  subject  to  confinement  in  the  penitentiary  for  not  less 
than  one  year  nor  more  than  five  years  and  the  tax  col- 
lector was  required  to  assess  a  double  tax  upon  the  tax- 
able income  of  said  delinquent. 

The  yield  of  this  tax  wrould  seem  to  have  been  very 
large.  Doctor  Kinsman,  on  the  authority  of  Avery's 
History  of  Georgia  (p.  267),  has  stated  that  the  amount 
of  income  assessed  in  1863  was  $15,737,479,  and  the  tax 
collected  was  $683,235.  As  these  amounts  seemed  sus- 
piciously large,  we  employed  a  competent  person  to  ex- 
amine the  old  records  and  were  informed,  not  only  that 
the  above  figures  were  correct,  but  that  the  profits  above 
8%  taxed  in  1864,  amounted  to  $22,247,092  and  the  tax 
to  $3,195, 217.06 (  !)  As  the  number  of  income  taxpayers 
is  given  as  3,758  the  average  income  tax  paid  by  each 
would  be  over  $850,  which  is  certainly  very  remarkable, 
if  true. 

Kentucky.  By  a  law  passed  in  1867,  assessors  were 
required  to  ascertain  the  amount  of  income  received  from 
interest  on  United  States  bonds  and  a  tax  of  5  per  cent 
was  assessed  on  the  gross  amount  of  said  income.  The 
amount  collected  under  this  law  was  at  first  quite  large, 
but  gradually  diminished  until  the  law  was  declared  un- 
constitutional in  1872.  The  amounts  collected  are  as 
follows : 

Year  Amount 

1868  $118,526.80 

1869  122,935.00 

1870  78,299.00 

1871  72,216.00 

In  holding  the  law  unconstitutional  the  Court  of  Ap- 
peals used  the  following  language : 


LOUISIANA  215 

It  is  true  that  when  the  interest  is  paid  it  ceases  to  con- 
stitute a  part  of  the  debt,  and  is  then  subject  to  be  taxed  by 
the  state  governments  like  other  property  held  or  owned  by 
their  citizens ;  and  it  is  insisted  that  because  the  act  quoted 
does  not  by  its  terms  necessarily  imply  an  intention  to  tax 
the  interest  accruing  on  Federal  securities  until  it  has  been 
actually  received  by  the  taxpayer,  it  can  be  enforced  with- 
out trenching  upon  any  of  the  rights  or  exemptions  secured 
to  him  as  the  holder  of  such  securities. 

It  is  a  sufficient  answer  to  this  assumption  that  the  tax 
imposed  on  the  income  or  interest  received  from  United 
States  bonds  by  the  act  in  question  is  ten  times  greater  than 
that  assessed  on  moneys  received  from  other  sources  by  the 
general  laws  of  the  state.  If  this  discrimination  can  be  con- 
stitutionally made,  it  results  that  it  is  within  the  power  of 
the  state  governments  to  impose  penalties  upon  their  citizens 
for  investing  in  the  securities  of  the  United  States,  and  by 
means  of  such  penalties  to  render  nugatory  the  power  of  the 
government  to  borrow  money  within  their  respective  terri- 
torial limits.7 

Louisiana,  though  one  of  the  first  states  to  provide  in 
its  constitution  for  an  income  tax,  did  not  levy  such  a  tax 
until  1865.  The  law  provided  for  a  rate  of  one-fourth  of 
one  per  cent  on  the  amount  of  income  in  excess  of  $2,000 
annually  received  by  all  persons  pursuing  any  trade,  pro- 
fession or  occupation.  The  penalty  for  failing  to  make 
a  return  of  income  or  to  pay  the  tax  was  20  per  cent  of 
the  amount  due. 

In  1878  the  rate  was  raised  to  thirteen  mills  upon 
"the  excess  of  all  annuities,  salaries  and  incomes  over 
$1,000  derived  from  any  source,  except  from  property 
taxed."  There  has  been  no  material  change  in  the  law 
since  that  time  except  that  the  rate  was  lowered  to  six 
mills  on  the  dollar  in  1882. 

The  law  is  unpopular  and  has  become  almost  a  dead 
letter  on  the  statute  books.  In  1868,  out  of  a  state  tax 
of  $508,378,  the  tax  on  income  amounted  to  $2,476 


7.     Bank  of  Kentucky  v.  Commonwealth,  9  Bush,  46 


2l6  INCOME  TAXATION 

or  less  than  one-half  of  one  per  cent,  and  in  1899  only 
two  counties  returned  any  tax,  the  total  amount  paid 
being  only  $104  out  of  a  state  tax  of  over  $2,000,000. 
It  should  be  mentioned,  however,  that  a  graduated  license 
tax  based  in  part  upon  income  has  proved  more  pro- 
ductive. 

Maryland.  The  experiences  of  Maryland  with  the  in- 
come tax  afford  a  striking  illustration  of  the  futility  of 
laws  which  run  counter  to  public  sentiment.  In  1842 
a  tax  of  2l/2  per  cent  was  levied  upon  salaries  and  emolu- 
ments and  all  incomes  and  profits  from  professions, 
faculties  and  employments.  There  was  an  exemption  of 
$500  and  the  salaries  of  judges  and  clergymen,  as  also 
incomes  received  from  property  already  taxed,  were  not 
to  be  assessed.  A  separate  tax  was  levied  upon  ground 
rents  to  which  however  the  $500  exemption  did  not 
apply.  The  assessors  were  authorized  to  demand  from 
every  taxpayer  a  complete  statement  under  oath  of  his 
income  and  a  refusal  to  comply  with  this  demand  was 
punishable  by  a  fine  of  not  to  exceed  $1,000.  An  effort 
was  also  made  to  provide  for  the  collection  of  salaries  at 
their  source. 

In  spite  of  the  penalties  the  law  was  practically 
ignored  in  many  counties  and  the  Governor's  Message 
in  1844  referred  to  the  "deplorable  remissness  in  the 
execution  of  the  tax  laws."  In  1850  the  law  was  re- 
pealed "because  of  its  inquisitorial  character,  its  im- 
pertinent scrutinizing  into  the  affairs  of  private  life  and 
of  other  difficulties  which  it  had  to  encounter,  and  the 
frauds  and  imposition  it  caused  and  above  all  its  utter 
failure  to  produce  a  sufficient  sum."  As  to  the  amount 
of  income  taxes  collected  while  the  law  was  in  force  we 


MASSACHUSETTS  2iy 

have  been  unable  to  secure  any  reliable  data.  It  is  evi- 
dent however  that  it  was  very  small. 

Doctor  Richard  T.  Ely,  who  was  a  member  of  the 
Maryland  Tax  Commission  of  1888,  presented  a  supple- 
mentary report  in  which  he  made  a  strong  argument  for 
a  state  income  tax,  but  his  suggestion  was  not  adopted.8 

Massachusetts  is  often  cited  as  a  State  which  has  had 
income  taxes  for  250  years  and  as  one  of  the  four  states 
which  has  such  a  tax  at  present;  but  we  have  seen  that 
Seligman  denies  that  the  early  taxes  were  properly  in- 
come taxes  and,  as  to  whether  the  present  tax  can  be 
called  an  income  tax  in  the  usual  acceptation  of  the  term, 
there  is  perhaps  room  for  argument. 

In  the  present  tax  law  of  the  state  is  is  provided  that : 
"Personal  estate  for  the  purposes  of  taxation  shall  in- 
clude: *  *  *  Fourth.  The  income  from  an  annuity 
and  the  excess  above  $2,000  of  the  income  from  a  pro- 
fession, trade  or  employment  accruing  to  the  person  to 
be  taxed  during  the  year  ending  on  the  first  day  of  May 
of  the  year  in  which  the  tax  is  assessed.  Income  derived 
from  property  subject  to  taxation  shall  not  be  taxed." 

This  is  all  there  is  of  the  law  and  it  simply  amounts 
to  a  requirement  that  receipts  from  annuities,  personal 
services  and  non-taxable  securities  shall  be  considered  in 
the  assessment  of  personal  property.  It  will  be  seen  that 
there  is  no  fixed  rate  upon  income,  but  it  is  taxed  at  the 
same  rate  as  other  property.  There  have  been  but  few 
changes  in  the  law  during  the  past  one  hundred  years. 
By  a  law  passed  in  1849  the  legislature  provided  for  an 
exemption  of  $600  from  the  income  derived  from  any 


8.     We  are  informed  by  Doctor  Ely  that  he  has  changed  his 
opinion  as  to  State  income  taxes  and  no  longer  advocates  them. 


2l8  INCOME  TAXATION 

profession,  trade  or  employment.  In  1866  the  exemp- 
tion was  increased  to  $1,000.  In  1871  and  1873  efforts 
were  made  to  repeal  the  law  and  in  the  latter  year,  as  the 
result  of  a  compromise,  the  exemption  was  fixed  at 
$2,000. 

The  provision  of  the  law  exempting  incomes  derived 
from  property  subject  to  taxation  permits  of  a  wide 
latitude  of  interpretation  and  has  been  utilized  to  a  very 
large  extent  as  a  means  of  evading  the  tax.  For  example, 
in  Boston,  it  has  been  customary  to  treat  income  as  ex- 
empt which  had  been  saved  and  invested  in  taxable  prop- 
erty or  securities.  In  a  case  which  arose  in  1869,  where 
a  merchant  sought  to  avoid  the  payment  of  the  income 
tax  on  the  ground  that  the  stock  of  goods  which  he  had 
on  hand  on  the  first  day  of  May  was  all  taxed,  the  Su- 
preme Court  held  that  the  income  was  the  product  of 
many  combined  influences,  some  of  which  it  named  and 
was  in  short  "a  combination  of  capital,  industry  and 
skill."  It  was,  therefore,  held  that  the  "tax  which  has 
been  assessed  upon  the  petitioner  is  not  for  an  income 
derived  from  specific  goods  and  merchandise ;  but  for  in- 
come derived  from  the  business  of  dealing  commercially 
in  the  like  goods  and  merchandise  with  such  a  degree  of 
skill,  judgment  and  good  fortune  that  his  share  of  the 
year's  products  amounts  to  the  sum  which  he  returned  as 
his  income  from  business."9 


9.  Wilcox  vs.  County  Commissioners  of  Middlesex,  103  Mass. 
544. 

This  decision  gave  rise  to  much  dissatisfaction  among  merchants 
and  business  men  generally  as  is  indicated  by  the  following  quota- 
tion from  an  address  by  Jonathan  A.  Lane,  President  of  the  Boston 
Merchants'  Association,  at  a  meeting  of  the  Boston  Executive  Busi- 
ness Association  April  20,  1891. 

"Of  course,  this  decision  obliterates  the  distinction  made  between 
two  classes;  virtually  repeals  the  act  declaring  that  one  class  shall 


MASSACHUSETTS 


219 


Another  cause  for  the  failure  of  the  tax  in  Massa- 
chusetts is  the  fact  that  the  tax  is  not  collected  by  the 
state,  but  the  total  amount  of  state  tax  is  apportioned  to 
the  local  taxing  units  and  they  are  left  free  to  enforce  it 
or  not,  as  they  please,  the  state  officials  being  indifferent 
so  long  as  the  total  amount  of  state  tax  is  raised.  The 
result  is  that  no  effort  is  made  to  enforce  the  tax  in  the 
great  majority  of  the  cities  and  towns.  A  statement 
which  was  made  up  at  the  request  of  the  Special  Tax 
Commission  of  1875,  for  the  year  1873,  showed  that  out 
of  340  towns  273  reported  no  income  assessed  and  17 
were  not  heard  from.  The  Tax  Commission  of  1897 
requested  all  the  cities  of  the  state  to  report  their  assess- 
ment of  personal  property  and  of  the  32  cities,  all  except 
Boston  and  Summerville  responded.  It  appeared  from 
these  reports  that  the  total  assessed  valuation  of  personal 
property  in  the  30  cities  for  the  year  1895  was  $194,783,- 
718,  but  of  this  sum  $3,880,220,  or  less  than  2  per  cent 
of  the  personal  property  was  assessed  as  income.  Nine 
cities  reported  no  income  and  the  two  cities  of  Medford 
and  Springfield  reported  nearly  one-half  of  the  whole 
amount.10 


not  be  taxed  upon  both  the  property  and  income  therefrom;  is  con- 
trary to  the  obvious  meaning  of  the  language  and  intent  of  the  law ; 
does  great  injustice  to  the  tax-paying  business  men;  strikes  all  fair- 
minded  persons  as  an  outrage  upon  the  common  sense  and  intelli- 
gence of  the  State;  and  it  results  in  a  kind  and  degree  of  double 
taxation,  without  a  parallel  in  these  United  States,  so  far  as  we  have 
been  able  to  learn." 

10.  Report  of  the  Commission  appointed  to  inquire  into  the  ex- 
pediency of  revising  and  amending  the  laws  of  the  Commonwealth 
relating  to  taxation,  1897,  p.  104.  Upon  the  question  of  State  income 
taxes  in  general  the  following  conclusion  is  reached :  "We  fear  that 
no  effective  public  opinion  would  be  present  to  aid  the  administration 
of  a  State  income  tax,  and  that  evasion  and  concealment  would  take 
place  to  so  great  an  extent  as  to  render  it  ineffective  and  deservedly 
unpopular." 


22O  INCOME  TAXATION 

On  account  of  the  method  by  which  the  income  tax  is 
merged  with  other  personal  property  taxes,  no  accurate 
statistics  of  the  amount  of  taxes  collected  can  be  ob- 
tained, but  it  is  probable  that  the  tax  has  rarely  exceeded 
$100,000  in  any  one  year. 

The  fact  that  the  income  tax  is  considered  as  simply 
one  of  the  many  forms  of  personal  property  and  is  not 
taxed  separately  accounts  in  a  measure  for  the  poor  suc- 
cess which  has  attended  its  enforcement.  In  Massa- 
chusetts, as  in  every  other  state,  the  attempt  to  tax  per- 
sonal property  has  been  practically  a  failure.  The  Special 
Committee  on  Taxation  of  the  Boston  Executive  Busi- 
ness Association,  in  a  report  made  October  21,  1889,  ex- 
pressed themselves  somewhat  passionately  on  the  subject 
as  follows: 

Your  committee  have  not  the  quality  of  omniscience, — 
we  thank  God  that  he  alone  possesses  this  divine  attribute, — 
but  your  committee  do  know,  of  their  own  knowledge,  facts 
in  regard  to  the  disproportion,  inequality,  injustice,  and  op- 
pression of  taxation  on  personal  property  in  the  State  of 
Massachusetts  that,  in  comparison  with  the  methods  and 
results  under  the  Sultan  of  Turkey,  Shah  of  Persia,  or  any 
other  despotism  of  the  Old  World,  would  afford  these 
Oriental  monarchs  the  greatest  complacency,  and  should 
mantle  the  cheek  of  Massachusetts  with  shame. 

The  same  Committee  gave  their  opinion  of  the  in- 
come tax  in  the  following  words : 

Your  committee  do  not  hesitate  to  unqualifiedly  con- 
demn the  present  income  tax  upon  business,  stocks  of  goods, 
and  capital  in  trade,  because  it  is  plain  violation  of  law, 
which  forbids  the  taxing  of  income  derived  from  property 
subject  to  taxation.  They  heartily  admit  that  an  income 
tax  from  profession,  trade,  or  employment,  or  from  personal 
property  not  subject  to  taxation  (in  excess  of  present  limita- 
tions, two  thousand  dollars),  would  be  right.  But  so  great 
is  the  prejudice  against  an  income  tax  of  any  sort,  so  strong 
the  temptation  to  evade  it,  and  so  inquisitorial  is  the  method 


MASSACHUSETTS  221 

of  enforcing  its  obligation,  that  we  deem  it  good  policy  to 
put  it  aside,  and  to  rely  upon  methods  of  taxation  which 
shall  be  more  simple,  sensible  and  reasonable,  and  which 
would  command  the  more  cheerful  assent  of  all  the  people. 

The  special  tax  commission  of  1875  gave  the  subject 
very  careful  attention  and  admitted  that  the  law  worked 
hardship,  inequality  and  injustice,  but  they  were  not 
wholly  prepared  to  abandon  the  idea  of  income  taxation 
and  they  expressed  the  opinion  that  "However  unpopular 
the  income  tax  is — and  we  admit  it  is  extremely  so — and 
however  irregular  and  inefficient  its  administration,  all 
of  which  in  the  actual  fact  it  would  be  difficult  to  ex- 
aggerate,— it  seems  that  no  one  can  clearly  understand 
this  tax  without  admitting  both  its  economy  and  its 
justice."  The  recommendations  were:  First,  that  the 
exemption  be  lowered  to  $1,000;  second,  that  no  deduc- 
tions should  be  permitted  for  income  invested  either  in 
taxable  property  or  otherwise;  third,  that  as  to  property 
employed  in  business,  a  deduction  of  6  per  cent  of  the 
assessed  value  of  the  property  should  be  allowed;  and, 
fourth,  that  a  supervising  department  of  taxes  should  be 
established.  In  spite  of  the  excellence  of  these  recom- 
mendations they  were  not  adopted. 

The  Massachusetts  Tax  Commission  of  1897,  which 
was  composed  of  very  able  men  and  which  prepared  a 
report  of  great  value,  practically  admitted  the  complete 
failure  of  the  income  tax  and  recommended  in  lieu  of  it 
a  tax  on  occupants  of  houses  having  a  rental  value  of 
more  than  $400  a  year.  The  rate  of  taxation  was  to  be 
10  per  cent  upon  the  excess  of  rental  value  over  $400,  so 
that  a  person  occupying  a  house  the  rental  value  of  which 
was  $500  would  pay  a  tax  of  $10  a  year.  It  should  be 


222  INCOME  TAXATION 

stated,  however,  that  this  proposition  was  not  endorsed 
by  the  full  commission  and  the  Massachusetts  Legislature 
has  not  as  yet  taken  any  action  upon  it. 

On  the  whole  it  must  be  conceded  that  the  experiences 
of  the  State  of  Massachusetts  in  attempting  to  tax  in- 
comes, in  spite  of  the  fact  that  those  experiences  extend 
over  so  long  a  period,  are  of  such  a  character  that  they 
form  no  proper  basis  for  an  argument  either  for  or 
against  state  taxation  of  incomes. 

Missouri.  The  income  tax  in  Missouri  which  was  in 
force  from  1801  to  1865  was  essentially  a  war  tax.  As 
at  first  levied  it  applied  to  salaries  in  excess  of  $800  and 
to  income  "derived  from  public  stocks,  bank  stocks,  stocks 
of  chartered  companies  or  from  other  property,  real  or 
personal,  not  taxed  in  the  state."  The  rate  was  thirty- 
two  cents  on  $100.  which  was  lowered  in  1864  to  one- 
fifth  of  one  per  cent.  The  exemption  was  reduced  at  the 
same  time  to  $200.  In  1865  the  rate  was  raised  to  three 
per  cent  on  salaries  of  officials  exempt  from  military  duty 
by  reason  of  their  offices  and  two  per  cent  on  other 
salaries.  The  exemption  was  also  raised  to  $600  and  it 
was  provided  that  the  sum  produced  by  the  tax  should  be 
paid  into  the  Union  Military  Fund.  In  case  of  failure  to 
make  a  sworn  return  of  the  amount  of  income  the  asses- 
sor was  authorized  to  value  the  income  at  double  what  he 
had  reason  to  believe  it  ought  to  be. 

North  Carolina.  This  state  has  had  an  income  tax 
for  sixty  years  and  the  law  has  been  materially  changed 
over  twenty  times.  To  trace  the  history  of  all  these 
changes  would  hardly  serve  a  useful  purpose  as  the  vari- 
ous laws  have  been  so  loosely  administered  that  no  de- 
ductions can  be  drawn  as  to  their  relative  merits.  Both 


NORTH  CAROLINA  223 

progressive  and  proportional  taxes  have  been  tried  and 
differentiation  and  classification  have  been  carried  further 
than  in  any  other  state. 

The  original  law  of  1849  levied  a  three  per  cent  tax 
on  interest  and  profits  from  certain  investments.  There 
was  a  $00  exemption  and  a  tax  of  $3.00  on  salaries  over 
$500.  The  plan  of  levying  separate  rates  upon  salaries 
is  one  which  seemed  to  meet  with  favor  as  it  was  per- 
sistently followed  for  half  a  century.  In  1851  this  por- 
tion of  the  tax  was  given  a  progressive  character  by  a 
provision  that  all  persons  except  clergymen,  the  Governor 
and  Judges  of  Supreme  and  Superior  Courts  should 
be  assessed  $2.00  for  salaries  between  $500  and  $1,000 
and  $2.00  for  every  additional  $500.  In  1855  the  rate 
on  interest  was  raised  to  four  per  cent,  and  numerous 
minor  changes  made  in  the  law.  The  extent  to  which 
classification  was  carried  may  be  seen  by  the  law  of  1863. 
The  tax  on  salaries  was  left  as  in  1851,  except  that  the 
exemption  was  raised  to  $1,000  and  it  was  not  to  apply 
to  certain  military  officers  and  public  officials.  The  rate 
on  profits  or  interest  from  capital  invested  in  banks  was 
fixed  at  eight  per  cent.  Ten  per  cent  was  levied  upon  the 
income  of  "Note  Shavers"  and  brokers.  Twenty  per  cent 
was  the  rate  upon  profits  of  liquor  dealers  who  brought 
liquors  into  the  state  or  bought  from  non-residents,  while 
dealers  in  liquors  distilled  in  the  state  paid  ten  per  cent 
and  hotel  keepers  one  per  cent.  Five  per  cent  was  levied 
upon  the  net  profits  received  from  the  purchase  and  sale 
of  articles  brought  into  the  state  through  the  blockade  or 
bought  in  Northern  states.  A  rate  of  two  per  cent  was 
levied  upon  net  profits  of  moneys  invested  in  sundry 
manufactures  or  in  steamboat  or  railroad  companies. 


224  INCOME  TAXATION 

These  instances  will  perhaps  suffice  to  show  the  extent  to 
which  classification  of  sources  of  income  was  carried. 
The  rates  experienced  many  changes  which  we  shall  not 
attempt  to  mention  in  detail. 

In  1866  salaries  or  fees  in  excess  of  $500  were  taxed 
one  per  cent  and  a  progressive  rate  was  applied  to  general 
profits  as  follows  : 

Incomes  above  $   500  and  less  than  $1.000  ............  1    % 

1,000     "        "      "  2,000  ............  \V2% 

2,000     "         "       "  3.000  ............  2     % 

3,000     "        "       "  4,000  ............  2l/2% 

4,000     "         "       "  5.000  ............  3 

5,000 


In  1867  the  law  reverted  towrard  a  proportional  rate, 
general  profits  being  subjected  to  a  tax  of  one-half  of  one 
per  cent  on  amounts  from  $500  to  $3,000  and  one  per 
cent  on  incomes  of  $3,000  or  more.  In  1869  the  law  was 
still  further  simplified  by  providing  a  tax  of  two  one-half 
per  cent  upon  annual  net  income  and  profit  from  any 
source  whatever  except  from  property  already  taxed.  In 
1870  this  rate  was  lowered  to  one  and  one-half  per  cent. 
In  1885  the  deductions  and  exemptions,  which  had  been 
specified  in  detail  and  limited  to  a  total  of  $1,000,  were 
given  a  maximum  limit  of  $1,500. 

The  progressive  rate  was  again  adopted  in  1893  and 
re-enacted  writh  slight  changes  in  1895,  1897  and  1899. 
There  was  considerable  popular  prejudice  against  the  pro- 
gressive system  and  in  1901  a  strictly  proportional  tax 
on  incomes  above  $1,000  was  adopted.  The  law  experi- 
enced slight  changes  in  1903,  1907  and  1909.  As  it  now 
stands  the  rate  is  one  per  cent  on  all  gross  incomes  in  ex- 
cess of  $1,000  and  the  law  further  provides  that  "the  in- 
comes subject  to  the  above  tax  are  those  derived  from 
property  not  taxed  ;  from  salaries,  fees  and  commissions, 


OKLAHOMA  225 

public  or  private;  from  annuities;  from  trades  or  profes- 
sions and  from  any  other  sources  the  incomes  from  which 
are  not  specifically  exempt  from  taxation  by  law."  Cities, 
towns,  townships  and  counties  are  expressly  prohibited 
from  levying  income  or  inheritance  taxes.  All  taxpayers 
are  required  to  list  their  incomes  and  penalties  are  pre- 
scribed for  divulging  or  publishing  the  amounts  of  in- 
dividual income. 

The  results  of  the  tax  have  been  disappointing,  the 
largest  amount  produced  by  the  tax  having  been 
$36,829.44  in  1907.  A  table  showing  amounts  collected 
and  total  state  taxes  for  many  years  will  be  found  in 
Appendix  E. 

Oklahoma.  The  income  tax  law  for  this  state  which 
was  passed  May  26,  1908,  has  at  least  the  merit  of 
brevity.  It  provides  that  at  the  time  of  making  the 
assessment  of  real  and  personal  property,  the  assessor 
shall  demand  of  each  person  a  statement  of  his  income  in 
so  far  as  it  exceeds  $3,500.  The  blank  for  such  a  tax 
contains  the  question,  "Was  your  gross  income  from 
salaries,  fees,  trade,  profession  and  property  upon  which 
a  gross  receipt  or  excise  tax  has  not  been  paid,  any  and 
all  of  them,  for  the  year  ending  June  30th  last  preceding, 
in  excess  of  $3,500?"  If  the  person  answers  the  question 
in  the  affirmative  he  is  to  be  furnished  by  the  assessor 
with  a  blank  in  the  following  form : 
To  the  State  Auditor  of  the  State  of  Oklahoma : 

I  hereby  certify  that  my  income  from  salaries,  fees, 
trades,  professions  and  property  upon  which  a  gross  receipt 
or  excise  tax  has  not  been  paid,  any  and  all  of  them,  for  the 


226  INCOME  TAXATION 

year  ending  June  thirtieth,  in  excess  of  three  thousand  five 
hundred  dollars  was  $ 

I being  duly  sworn  do  certify 

that  the  foregoing  certificate  is  true  to  the  best  of  my  knowl- 
edge and  belief. 

Subscribed  and  sworn  to  before  me  this day 

of.. 


Assessor. 

The  assessor  forwards  the  certificate  to  the  State 
Auditor  who  certifies  to  the  proper  county  clerk  the 
amount  of  the  tax  due  upon  the  income  so  reported,  and 
the  same  is  then  extended  on  the  tax  rolls  in  the  same 
manner  as  other  property.  The  assessor  of  each  town- 
ship is  required  to  furnish  the  State  Auditor  a  list  of  all 
persons  who  are  subject  to  the  tax  and  who  have  made 
the  above  declaration,  together  with  the  names  of  other 
persons  who,  in  his  opinion,  may  be  liable  for  income 
tax;  and  the  State  Auditor  is  given  power  to  subpoena 
witnesses  and  take  other  steps  to  ascertain  whether  such 
persons  ought  to  make  returns.  The  rates  levied  may  be 
seen  by  the  following  table : 

Incomes  Tax  on  $1.00          Percentage 

$     3,500  to  $     5,000  5       mills  ^    of   1% 


5,000  "  10,000                7l/2 

10,000  "  20,000  12 

20,000  "  50,000  15 

50,000  "  100,000  20 


1% 
1  1/5% 


2% 
31/3% 


100,000  and  above  33  1/3 

It  should  be  noted  that  these  rates  are  levied  upon 
gross  incomes.  The  only  exception  occurs  in  the  case  of 
interest  derived  from  property  upon  which  a  gross  re- 
ceipt or  excise  tax  has  been  paid.  It  is  made  unlawful  to 
print  or  publish  in  any  manner  any  income  tax  return  or 
any  part  thereof,  and  penalties  are  provided  for  false 
swearing  or  failure  on  the  part  of  the  assessor  to  perform 
his  duty. 


OKLAHOMA  227 

A  notable  feature  of  this  law  is  the  unusually  high 
exemption,  which  will  probably  prevent  its  application  to 
the  great  majority  of  the  inhabitants  of  the  state.  The 
population  of  the  state  in  1900  was  790,205  and  the  next 
census  will  no  doubt  show  it  to  be  over  one  million.  We 
venture  the  prediction  that  the  tax  will  be  paid  by  less 
than  one  thousand  people,  and  possibly  by  less  than  one 
hundred. 

The  income  tax  proper  is  levied  for  the  benefit  of  the 
common  school  fund,  and  the  amount  certified  to  the 
county  clerks  by  the  State  Auditor  in  1909  was  only  about 
$1,500  out  of  a  total  ad  valorem  state  tax  of  $1,953,285. 
It  is  unlikely  that  even  that  small  amount  was  actually 
collected,  as  there  was  some  doubt  as  to  the  legality  of 
the  tax  owing  to  the  fact  that  the  law  (as  to  the  first 
year's  tax)  seemed  to  apply  to  a  period  prior  to  the  or- 
ganization of  the  state  government  (November  16,  1907) 
and  an  act  had  been  passed  remitting  the  state  taxes  for 
1907.  The  amount  collected  in  1909  cannot  therefore  be 
considered  as  any  criterion  of  what  will  be  raised  by  the 
tax  hereafter. 

The  definition  of  the  term  "gross  income"  is  likely  to 
play  an  important  role  in  the  administration  of  the  tax. 
If  interpreted  to  mean  "gross  receipts"  the  tax  may  prove 
very  burdensome  to  farmers,  merchants  and  manu- 
facturers who  may  receive  and  disburse  large  sums  in 
the  course  of  a  year  without  realizing  much  or  any  profit. 

In  addition  to  the  income  tax  proper,  there  is  a  grad- 
uated land  tax  which  is  supplemental  to  the  ad  valorem 
tax  and  is  based  upon  the  average  value  of  farm  land. 
According  to  the  terms  of  this  act,  which  assumes  the 


228  INCOME  TAXATION 

average  value  of  farm  lands  to  be  $20  an  acre,  a  supple- 
mentary tax  is  levied  as  follows : 

Over   640  acres  in  value  ($  12,800)  not  to  exceed  1,280  acres —  .25% 

:     1,280      "  "       "        ($  25,600)     "     "          "       3,000    "  —          1% 

1     3,000  "       "       ($  60,000)      "     "          "       5,000    "  —          2% 

'     5,000  "        ($100,000)     "     "          "     10,000    "  —          5% 

"  10,000  ($200,000)      "                "     25,000    "  —        10% 

This,  it  is  true,  is  not  an  income  tax,  but  it  becomes 
such  in  the  case  of  leased  lands,  as  a  person  holding  such 
lands  under  lease  or  contract  of  rental  is  taxed  upon  his 
"income,  rents  or  profits"  from  holdings  as  follows : 

In  excess  of     640  acres  not  exceeding    1,280  acres  1% 

"  1,280      "         "                         2,500      "  3% 

"        "  2,500      "        "                         5,000      "  5% 

"  5,000      "                                 10,000      "  10% 

It  is  provided  that  this  tax  shall  be  "in  addition  to 
other  taxes  levied,  charged  and  collected"  so  that  the  re- 
sult would  be  as  to  a  person  leasing  10,000  acres  (assum- 
ing the  value  to  be  $20  an  acre,  the  ad  valorem  tax,  say, 
3%,  and  the  profit  10%),  that  he  might  be  called  on  to 
pay  an  ad  valorem  tax  of  $6,000,  an  income  tax  of  $198, 
and  a  graduated  land  tax  of  $2,000,  being  a  total  of 
$8,198,  or  nearly  41  per  cent  of  his  whole  income.  These 
rates  are  of  course  prohibitive  and  the  law  was  no  doubt 
framed  more  with  a  view  to  prevent  large  holdings  than 
to  secure  revenue. 

Pennsylvania.  The  first  attempt  to  levy  taxes  upon 
incomes  was  made  in  1817,  but  proved  abortive.  In  1841 
a  tax  of  one  per  cent  was  levied  upon  salaries  and  fees, 
and  the  following  year  the  rate  was  increased  to  two  per 
cent  with  a  rate  of  one  per  cent  upon  income  from  trades, 
occupation  or  professions.  The  amount  exempted  was 
$200.  The  law  remained  in  this  form  with  but  slight 
changes  until  it  was  repealed  in  1871.  The  results  at- 
tained by  the  tax  are  not  known  as  the  tax  was  not  re- 


SOUTH  CAROLINA  229 

ported  upon  separately.  The  Governor's  Message  for 
1844  contained  a  statement  that,  out  of  total  state 
revenues  of  nearly  a  million  dollars  the  income  tax  con- 
tributed only  $1,386. 

Mention  should  be  made  however  of  another  tax 
which  proved  more  successful  and  which  might  be  de- 
scribed as  a  corporation  income  tax.  Beginning  in  1835 
as  a  graduated  tax  upon  bank  dividends,  it  finally  de- 
veloped into  a  simple  proportional  tax  of  three  per  cent 
upon  the  annual  net  earnings  or  income  of  all  corpora- 
tions. This  tax  is  all  collected  at  the  source,  the  com- 
panies being  required  to  pay  it  directly  to  the  state.  Ac- 
cording to  Kinsman,  the  tax  meets  with  general  ap- 
proval and  yields  about  one-half  of  the  total  revenue  of 
the  commonwealth;  but  the  statement  as  to  the  yield  of 
the  tax  would  seem  to  be  erroneous  as  we  are  informed 
by  a  letter  from  the  Auditor  General  that  the  total  amount 
collected  from  this  tax  for  the  year  ending  November  30, 
1909,  was  only  $44,533.29. 

South  Carolina.  With  the  exception  of  the  years 
1868  to  1897,  South  Carolina  has  had  a  continuous  ex- 
perience with  faculty  and  income  taxes  extending  over  a 
period  of  209  years,  though  it  was  not  until  the  time  of 
the  Civil  War  that  the  law  began  to  assume  the  form  of 
a  general  income  tax.  In  1861  a  tax  of  one  per  cent  was 
levied  on  certain  specified  professional  incomes,  and  on 
salaries  over  $500.  In  1864  the  tax  on  wages  and  salaries 
was  repealed,  but  it  was  re-enacted  with  some  changes  in 
1866.  When  the  new  constitution  was  adopted  in  1868, 
the  income  tax  was  dropped  and  nearly  thirty  years 
elapsed  before  any  serious  attempt  was  made  to  introduce 
it  again. 


230  INCOME  TAXATION 

The  constitution  of  1895  provided  for  "a  graduated 
tax  on  incomes  and  for  a  graduated  license  on  occupations 
and  business."  In  1896  an  attempt  was  made  to  pass 
an  income  tax  law,  but  the  bill  was  defeated.  In  the  fol- 
lowing year  a  new  bill  was  introduced  which  met  with 
determined  opposition  and  occasioned  much  public  dis- 
cussion. While  a  majority  of  the  legislature  favored  the 
law  there  was  great  diversity  of  opinion  as  to  what  should 
be  the  rate  and  the  amount  of  exemption.  The  law  was 
finally  passed  in  March,  1897,  with  a  provision  that  it 
should  go  into  effect  January  1,  1898.  The  rates  were 
fixed  at  one  per  cent  on  all  "gains,  profits  or  income" 
above  $2,500  and  up  to  $5,000;  one  and  one-half  per 
cent  on  amounts  from  $5,000  to  $7,500 ;  two  per  cent  on 
$7,500  to  $15,000  and  three  per  cent  on  all  over  $15,000. 
While  the  word  "income"  was  to  be  taken  as  meaning 
"gross  profits"  it  was  provided  that  there  might  be  de- 
ducted the  necessary  expenses  actually  incurred  in  carry- 
ing on  the  business  or  profession.  The  amount  to  be 
raised  \vas  apportioned  among  the  counties  and  levied  and 
collected  at  the  same  time  and  in  the  same  manner  as 
other  taxes. 

Strenuous  efforts  to  repeal  the  law  were  made  in  1900 
and  1901  and  bills  for  that  purpose  were  passed  unani- 
mously in  the  lower  house,  but  met  with  defeat  in  the 
Senate. 

The  Report  of  the  Comptroller  General  for  the  year 
1909  gives  the  yield  of  the  tax  as  follows : 

1898,  $   689.55          1904,     $  1,281.26 

1899,  4,829.63  1905,       2,130.61 

1900,  975.37  1906,       12,201.42 

1901,  609.22  1907,       10,687.34 

1902,  292.08  1908,       8,431.52 

1903,  1,476.74  1909,       16,236.57 


TEXAS TENNESSEE  231 

Texas.  A  partial  income  tax  of  one-quarter  of  one 
per  cent  on  salaries  in  excess  of  $500  was  levied  as  a  war 
measure  in  1863.  The  amount  raised  was  very  small  and 
in  accordance  with  a  recommendation  of  the  Governor 
in  1866,  a  general  income  tax  bill  was  passed,  which  pro- 
vided for  the  following  rates  on  net  income : 

On  first  $1.000 1     % 

"    second  $1,000 1*4% 

"    third,  fourth  and  fifth  $1,000 2     % 

"    all  above  $5,000 3     % 

As  was  customary  in  the  southern  states  at  that  time, 
salaries  were  not  treated  as  incomes,  but  were  taxed 
separately,  the  rate  being  one-half  of  one  per  cent  on  the 
excess  over  $600.  The  law  made  quite  elaborate  pro- 
visions for  ascertaining  net  incomes  and  among  the  many 
deductions  specified,  there  was  one  which  perhaps  de- 
serves mention  as  being  rather  unusual.  Profits  on  real 
estate  purchased  within  the  year  were  treated  as  income, 
but  a  deduction  was  allowed  for  any  losses  sustained  on 
real  estate  purchased  during  the  same  year. 

In  spite  of  the  care  with  which  the  law  was  drawn  it 
seems  to  have  fallen  into  disuse  and  was  soon  supplanted 
by  license  taxes  on  occupations  and  other  forms  of 
taxation. 

In  1909  a  bill  taxing  incomes  in  excess  of  $2,000  at 
the  rate  of  one  per  cent  was  passed  by  the  lower  house 
but  was  killed  in  the  Senate. 

Tennessee.  By  Chapter  106,  Laws  of  1883,  income 
derived  from  shares  of  stock  in  any  corporation  exempt 
by  its  charter  from  ad  valorem  tax,  or  from  bonds  ex- 
empt from  taxation  generally,  was  declared  taxable  and 
the  rate  fixed  at  5  per  cent.  Chapter  120  of  the  Laws  of 
1895,  Section  9,  subd.  10,  provided  that  the  amount  of 


232  INCOME  TAXATION 

income  derived  from  United  States  bonds  and  all  other 
stocks  and  bonds  not  taxed  ad  valorem  should  be  taxable. 
The  rate  was  fixed  at  5  per  cent.  This  provision  is  re- 
peated in  Section  8,  Chapter  258,  Laws  of  1903,  and  does 
not  appear  to  have  been  repealed. 

Virginia.  The  experiences  of  this  state  with  the  in- 
come tax  extend  over  a  continuous  period  of  67  years. 
During  that  time  nearly  every  imaginable  variation  upon 
the  tax  has  been  tried.  As  has  been  well  said,  "The  his- 
tory of  the  tax  is  the  history  of  a  confused  mass  of  legis- 
lation," and  any  attempt  to  follow  out  that  history  in 
detail  would  prove  wearisome  and  unprofitable. 

Nevertheless,  in  spite  of  the  complexities  and  imper- 
fections of  the  lawrs,  the  experience  of  Virginia  is  notable 
in  that  it  has  probably  resulted  in  raising  a  larger  sum  in 
the  aggregate  from  State  income  taxes  than  has  been 
raised  by  that  means  in  any  other  state.  I  have  not  been 
able  to  secure  the  statistics  for  all  the  years,  but  it  seems 
safe  to  say  that  a  total  of  over  three  million  dollars  has 
been  collected. 

As  originally  adopted  in  1843  the  law  imposed  a  tax 
of  one  per  cent  upon  incomes  in  excess  of  $400  received 
for  personal  services,  and  two  and  one-half  per  cent  upon 
interest  in  excess  of  $100  received  from  investments, 
thus  recognizing  the  distinction  between  "earned  and  un- 
earned incomes."  The  principle  of  differentiation,  as  in 
the  case  of  North  Carolina,  was  carried  to  great  lengths 
and  changes  were  constantly  being  made  in  the  rates.  In 
fact  all  the  subsequent  legislation  on  the  subject  betrays 
the  same  naive  assumption  which  is  common  to  state  in- 
come tax  laws  generally,  namely :  that  it  is  only  necessary 
to  fix  by  legislative  enactment  the  exact  rates  to  be  levied 
and  the  administration  of  the  law  will  take  care  of  itself. 


VIRGINIA  233 

In  1862  and  1863,  owing  to  the  necessities  of  the  war 
period  a  wider  scope  was  given  to  the  tax  and  the  rates 
materially  raised  with  the  result  that  the  collections 
reached  high  water  mark  in  1863  when  they  amounted  to 
$178,944.92.  At  this  period  salaries  were  taxed  two  and 
one-half  per  cent  on  the  amount  in  excess  of  $500. 
Seventeen  per  cent  was  levied  upon  income  from  toll- 
bridges  and  ferries,  and  ten  per  cent  upon  net  profits  re- 
ceived from  trade,  business,  use  of  money  and  the  like. 
There  was  also  a  tax  upon  dividends  of  corporations, 
levied  at  the  source,  as  in  Pennsylvania.  It  must  also  be 
remembered  that  the  Southern  Confederacy  levied  a  gen- 
eral income  tax  in  1863,  with  rates  ranging  from  two  per 
cent  on  salaries  to  fifteen  per  cent  on  incomes  over 
$10,000,  and  sixteen  and  two-thirds  per  cent  on  profits 
of  joint  stock  companies  in  excess  of  twenty  per  cent.  In 
view  of  the  devastations  wrought  by  the  war  in  Virginia 
the  relatively  large  amounts  collected  for  income  taxes  at 
this  period  afford  a  striking  proof  of  the  loyalty  and  de- 
votion of  the  people. 

Of  the  great  number  of  variations  which  the  law  has 
experienced  perhaps  the  most  notable  was  the  change 
made  in  1866  by  which  a  system  of  five  schedules,  cor- 
responding somewhat  writh  those  of  the  English  income 
tax,  were  adopted.  Schedule  D,  which  referred  ex- 
clusively to  incomes,  was  divided  into  six  sub-classes. 
Different  rates  and  exemptions  were  applied  to  these  sub- 
classes and,  as  salaries  were  in  a  separate  schedule,  re- 
ceiving still  different  treatment,  the  law  became  very  com- 
plicated and  correspondingly  difficult  of  enforcement. 

As  a  result  the  amount  of  collections  dropped  to  about 
$23,000,  and  in  1870  the  present  method  of  assessing  and 


234  INCOME  TAXATION 

taxing  incomes  was  introduced.  At  that  time  also  the 
somewhat  hazardous  plan  of  defining  income  in  detail 
was  adopted.  Passing  by  numerous  changes  made  in  the 
law  during  the  seventies  and  a  few  in  later  years,  the  law 
now  in  force,  may  be  summarized  as  follows : 

A  tax  of  one  per  cent  is  levied  upon  the  aggregate 
amount  of  income  in  excess  of  $1,000  whether  received, 
or  due  and  not  received,  within  the  year  next  preceding 
the  first  of  February. 

Income  is  divided  into  five  classes : 

1.  All  rents  (except  ground  rents  and  rents-charge), 
salaries,  interest  upon  notes,  bonds  or  other  evidences  of 
debt    *    *    *    collected  or  received  during  the  year  less 
the  interest  due  and  paid  during  the  year. 

2.  All  premiums  on  gold,  silver  and  coupons. 

3.  The  amount  of  sales  of  live  stock  and  meat  of  all 
kinds  less  the  value  assessed  the  previous  year  by  the 
commissioner  of  the  revenue. 

4.  The  amount  of  sales  of  various  agricultural  pro- 
ducts (specified  in  detail),  less  all  sums  paid  for  taxes  and 
labor,   fences,   fertilizer,  seed,  etc.,  purchased  and  used 
upon  the  land  and  the  rent  paid  for  the  land  if  the  person 
be  not  the  owner  thereof. 

5.  All  other  gains    and    profits    derived  from  any 
source  whatever. 

In  addition  to  the  $1,000,  the  deduction  mentioned 
above,  it  is  also  provided  that  all  losses  sustained  during 
the  year  may  be  deducted,  but  only  one  deduction  of 
$1,000  can  be  made  from  the  aggregate  income  of  any 
family,  except  that  guardians  can  make  a  separate  deduc- 
tion of  $1,000  in  favor  of  each  ward  out  of  the  income 
of  such  ward. 


WEST  VIRGINIA  235 

The  results  which  have  been  obtained  under  the  Vir- 
ginia system  may  be  seen  by  the  following  table  taken 
from  the  Auditor's  Reports  for  the  respective  years : 

Year          Income  Tax  Year          Income  Tax 

1887  $38,950.84  1898      $43,204.72 

1888  38,144.80  1899  54,148.38 

1889  45,906.69  1900  46,023.66 

1890  51,246.69  1901  59,251.55 

1891  62,206.70  1902  60,356.57 

1892  54,154.44  1903  64,781.39 

1893  51,700.12  1904  70,953.54 

1894  40,943.41  1905  77,414.23 

1895  43,026.26  1906  94,291.43 

1896  42,377.81  1907  122,056.77 

1897  37,502.27  1908  102,810.50 

West  Virginia.  The  income  tax  adopted  by  this  state 
in  1863  was  modeled  after  the  law  in  force  in  Virginia 
at  that  time.  Five  per  cent  was  levied  upon  interest  on 
bonds  of  corporations,  states  and  counties  and  a  low  pro- 
gressive rate  upon  incomes  received  from  any  office  or 
employment.  To  a  considerable  extent  the  law  was  a 
combination  of  income  and  license  taxes  and  it  was 
amended  in  December,  1863,  so  that  those  liable  to  the 
combined  tax  were  exempt  from  the  income  tax.  The 
law  soon  became  a  dead  letter  so  far  as  incomes  were  con- 
cerned and  no  attempt  has  ever  been  made  to  revive  it. 


CONCLUSION. 

In  closing  this  imperfect  sketch  of  state  income  taxes 
I  cannot  perhaps  do  better  than  to  quote  a  few  sentences 
from  Kinsman's  excellent  book  on  the  subject  in  which 
he  sums  up  his  conclusions  as  follows : 

The  experience  of  the  states  with  the  income  tax  war- 
rants the  conclusion  that  the  tax,  as  employed  by  them,  has 
been  unquestionably  a  failure.  It  has  satisfied  neither  the 
demands  for  justice  nor  the  need  of  revenue.  The  question 
arises :  Is  this  failure  due  to  qualities  inherent  in  the  nature 
of  the  tax,  or  is  it  the  result  of  conditions  which  may  be 


INCOME  TAXATION 

removed?  One  of  the  fundamental  principles  of  taxation  is 
that  the  subjects  of  a  state  ought  to  contribute  to  the  sup 
port  of  the  government  in  proportion  to  their  respective 
abilities,  and  it  is  generally  agreed  that  these  abilities  are 
best  measured  by  income.  Therefore,  theoretically  at  least, 
an  income  tax  is  unquestionably  the  fairest  system  yet  pro- 
posed. Throughout  the  history  of  the  tax  in  the  several 
states  the  opposition  has  never  seriously  attacked  it  from  a 
theoretical  standpoint.  *  *  * 

A  careful  study  of  the  history  of  the  tax  leads  one  to 
the  conclusion  that  the  failure  has  been  due  to  the  adminis- 
tration of  the  laws.  This  conclusion  is  borne  out  by  both 
the  admissions  of  the  advocates  and  the  assertions  of  the 
opponents  of  the  tax,  and  is  corroborated  by  the  reports  of 
tax  commissions.  *  *  * 

As  the  result  of  our  study  we  conclude  that  the  state  in- 
come tax  has  been  a  failure,  due  to  the  failure  of  administra- 
tion, which,  in  turn,  may  be  attributed  to  four  causes — the 
method  of  self-assessment,  the  indifference  of  state  officials, 
the  persistent  effort  of  the  taxpayers  to  evade  the  tax,  and 
the  nature  of  the  income.  The  tax  can  not  be  successful 
so  long  as  taxpayers  desirous  of  evading  taxation  are  given 
the  right  of  self-assessment.  Since  all  attempts  to  change 
the  method  of  self-assessment  have  failed  and  the  nature  of 
industry  in  the  states  is  at  present  such  as  to  make  impos- 
sible the  assessment  of  a  general  income  tax  at  the  source, 
we  are  forced  to  the  conclusion  that,  even  though  no  con- 
stitutional questions  should  arise,  failure  will  continue  to 
accompany  the  tax  until  our  industrial  system  takes  on  such 
form  as  to  make  possible  the  use  of  some  method  other  than 
self-assessment. 


CHAPTER  XII. 


UNITED  STATES. 
FEDERAL  INCOME  TAXES. 


A.       THE   CIVIL   WAR  INCOME   TAX. 

The  first  and  practically  the  only  experience  of  the 
Federal  Government  with  income  taxation  occurred  dur- 
ing the  period  of  1861-1872. *  The  so-called  Civil  War 
income  tax  of  that  period  presents  many  interesting 
features,  but  should  not  be  looked  upon  as  affording  any 
reliable  criterion  of  what  could  be  accomplished  by 


*.  A  tax  on  carriages  was  levied  in  1796,  but  the  Supreme  Court, 
in  the  now  famous  case  of  Hylton  vs.  the  United  States,  3  Dallas, 
171,  held  that  this  was  not  a  direct  tax,  but  an  excise.  The  first  di- 
rect tax  was  one  levied  on  houses  in  1798;  but  it  could  hardly  be 
called  an  income  tax,  although  it  may  have  aimed  to  reach  incomes 
upon  the  assumption  that  the  value  of  a  man's  house  is  a  fair  index 
of  his  ability  to  pay.  The  law  consisted  of  a  progressive  percentage 
tax  in  accordance  with  the  following  scale  : 
Houses  valued  from  $  100  to  $  1,000  were  taxed  at  the  rate  of  0.2% 


1.000 
3,000 
6,000 
10,000 

3,000 
6,000 
10,000 
15,000 

t 

i 

i 

• 

0.4% 
0.5% 
0.6% 
0.7% 

15,000 
20,000 
30,000  i 

20,000 
30,000 

ipwards 

t 

t 

< 

< 

0.8% 
0.9% 
1.  % 

An  income  tax  designed  to  raise  $3,000,000  was  proposed  by  Sec- 
retary of  the  Treasury  Dallas,  January  17,  1815,  but  his  suggestion 
was  not  adopted.  See  American  State  Papers,  Vol.  II,  p.  887. 


238  INCOME  TAXATION 

similar  laws  in  times  of  peace.  It  is  impossible  to  esti- 
mate the  extent  to  which  the  patriotic  impulses  of  the 
northern  people  contributed  to  the  comparative  success 
of  the  tax;  and  it  is  impossible  to  say  what  the  results 
of  the  law  would  have  been  if  it  had  been  less  crudely 
drawn  and  had  not  been  subject  to  constant  changes.  It 
must  be  remembered  that  there  was  not  one  statute  which 
could  be  called  the  Income  Tax  Law%  but  a  succession  of 
laws  and  amendments  varying  so  widely  as  to  show  con- 
clusively their  tentative  and  experimental  character.  The 
first  law,  which  served  in  some  respects  as  a  model  to  all 
that  followed,  was  evidently  drawn  in  great  haste  by  men 
who  were  unfamiliar  with  the  subject. 

On  July  4-,  1861,  Congress  was  convened  in  extra- 
ordinary session  by  President  Lincoln.  Secretary  Chase 
in  his  report  on  the  finances  was  able  to  make  provision 
for  all  of  the  amount  then  supposed  to  be  needed,  except 
twenty  million  dollars  which  he  proposed  to  raise  "by  a 
direct  tax,  or  from  internal  duties  or  excise,  or  both." 
On  July  16,  Mr.  Thaddeus  Stevens,  chairman  of  the 
House  Committee  on  Ways  and  Means,  reported  a 
revenue  bill  which  contained  a  provision  for  a  direct  tax 
of  thirty  million  dollars  to  be  apportioned  to  the  states  on 
the  basis  of  population;  and  on  the  following  day  sub- 
mitted a  resolution  which  was  adopted,  providing  that  all 
debate  on  the  bill  by  the  committee  should  cease  in  one 
hour  after  its  consideration  was  commenced,  after  which 
the  committee  should  proceed  to  vote  on  amendments. 

The  proposition  for  a  direct  tax  met  with  much  op- 
position and  an  income  tax  was  suggested  as  a  substitute. 
The  bill  was  amended  so  as  to  reduce  the  direct  tax  from 
$30,000,000  to  $20,000,000  and  provision  was  made  for 


CIVIL  WAR  INCOME  TAX  239 

a  tax  of  3  per  cent  on  all  income  over  $600  after  which 
the  bill  was  passed  July  29,  1861.  In  the  meantime  how- 
ever the  matter  was  under  consideration  in  the  Senate. 
Mr.  Simmons,  chairman  of  the  Committee  on  Finance, 
offered  an  amendment  imposing  a  tax  of  5  per  cent  on 
income  over  $1,000.  This  amendment  was  accepted  with 
but  little  debate,  Mr.  Simmons  stating  that  the  Commit- 
tee had  followed  the  law,  rule  and  practice  in  England 
where  a  similar  tax  had  been  in  force  for  fifty  years.2  As 
the  House  Bill  and  the  Senate  amendment  were  passed 
upon  the  same  day  the  whole  matter  went  to  a  Committee 
of  Conference  which,  after  brief  debate,  adopted  a  com- 
plete substitute  for  the  original  House  Bill.  This  sub- 
stitute included  some  of  the  Senate  provisions  in  a  modi- 
fied form.  The  report  was  adopted  on  the  same  day  by 
the  Senate  by  a  vote  of  34  yeas  to  8  nays  and  the  act  be- 
came a  law  August  5,  1861. 3 

While  the  law  thus  hastily  passed  was  superseded  by 
a  subsequent  act  before  it  went  into  operation,  it  is  in- 
teresting as  indicating  the  views  of  Congress  at  that  time 
as  to  the  form  which  an  income  tax  should  take.  It  was 
not  a  separate  and  distinct  law,  but  only  a  portion  of  the 
general  revenue  act,  and  the  most  important  portion 
(§49)  read  as  follows: 

That  from  and  after  the  first  day  of  January  next  there 
shall  be  levied,  collected  and  paid,  upon  the  annual  income 
of  every  person  residing  in  the  United  States,  whether  such 
income  is  derived  from  any  kind  of  property,  or  from  any 
profession,  trade,  employment,  or  vocation  carried  on  in  the 


2.  Mr.  Simmons  was  mistaken,  as  the  English  Income  Tax  law 
had   been  in  force   only  eighteen  years  and  one  could   search  the 
American   Income   Tax  law  in  vain   for  any  point  of  resemblance 
to  the  English  law. 

3.  12  Stat.  at  Large  Ch.  45,  p.  309,  §§  49-51. 


240  INCOME  TAXATION 

United  States  or  elsewhere,  or  from  any  other  source,  if 
such  annual  income  exceeds  the  sum  of  $800,  a  tax  of  3 
per  centum  on  the  amount  of  such  excess  of  such  income 
above  $800:  Provided,  that  upon  such  portion  of  said  in- 
come as  shall  be  derived  from  interest  upon  Treasury  notes 
or  other  securities  of  the  United  States,  there  shall  be  levied, 
collected  and  paid  a  tax  of  i^  per  centum.  Upon  the  in- 
come, rents  or  dividends  accruing  upon  any  property,  securi- 
ties or  stocks  owned  in  the  United  States  by  any  citizen  of 
the  United  States  residing  abroad,  there  shall  be  levied, 
collected  and  paid  a  tax  of  5  per  centum,  excepting  that 
portion  of  said  income  derived  from  interest  on  Treasury 
notes  and  other  securities  of  the  Government  of  the  United 
States,  which  shall  pay  rj  per  centum.  The  tax  herein  pro- 
vided shall  be  assessed  upon  the  annual  income  of  the  per- 
sons herein  named  for  the  year  next  preceding  the  time  for 
assessing  said  tax,  to- wit:  the  year  next  preceding  the  ist 
of  January,  1862,  and  the  said  taxes,  when  so  assessed  and 
made  public,  shall  become  a  lien  on  the  property  or  other 
sources  of  said  income  for  the  amount  of  the  same,  with  the 
interest  and  other  expenses  of  collection  until  paid :  Pro- 
vided, that  in  estimating  said  income  all  National,  State  or 
local  taxes,  assessed  upon  the  property  from  which  the  in- 
come is  derived,  shall  be  first  deducted. 

As  Congress  was  to  meet  again  in  December  and  it 
was  generally  understood  that  some  modifications  were 
likely  to  be  made  in  the  law,  the  Secretary  of  the  Treas- 
ury took  no  steps  towards  its  collection  and  in  his  annual 
report  commended  the  "prudent  forecast  which  induced 
Congress  to  postpone  another  year  the  necessity  of  tak- 
ing steps  for  the  practical  enforcement  of  the  law,"  thus 
affording  "happily  the  opportunity  of  revision  and  modi- 
fication." He  further  recommended  that  the  direct  tax 
be  increased  to  the  original  sum  of  thirty  million  dollars 
and  that  fifty  million  dollars  be  raised  by  internal  taxa- 
tion without  resorting  to  an  income  tax.  This  report 
was  presented  on  the  9th  of  December,  1861,  but  no  ac- 
tion seems  to  have  been  taken  until  March  12,  1862,  when 
the  Committee  of  Ways  and  Means  reported  an  internal 


CIVIL  WAR  INCOME  TAX  24! 

revenue  bill,  which  included  a  tax  of  3  per  cent  on  in- 
comes above  $600.  It  was  estimated  that  the  income  tax 
thus  provided  for  would  produce  about  five  million  dol- 
lars of  revenue.  The  tax  seems  to  have  been  levied  as  a 
sort  of  dubious  experiment  and  the  attitude  of  Congress 
toward  it  was  probably  reflected  to  a  considerable  extent 
by  Senator  Morrill,  who,  in  reporting  the  measure,  said : 

The  income  duty  is  one  perhaps  of  the  least  defensible 
that,  on  the  whole,  the  Committee  of  Ways  and  Means  con- 
cluded to  retain  or  report.  The  objection  to  it  is  that  nearly 
all  persons  will  have  been  already  once  taxed  upon  the 
sources  from  which  this  income  is  derived.  There  are  few 
persons  in  the  country  who  have  any  fixed  incomes  for  a 
term  of  years.  The  income  tax  is  an  inquisitorial  one  at 
best;  but  upon  looking  at  the  considerable  class  of  State 
officers,  and  the  many  thousands  who  are  employed  on  a 
fixed  salary,  many  of  whomT would  i  not  contribute  a  penny 
unless  called  upon  through  this  tax,  it  has  been  thought 
best  not  to  wholly  abandon  it.  Ought  not  men,  too,  with 
large  incomes  to  pay  more  in  proportion  to  what  they  have 
than  those  with  limited  means  who  live  by  the  work  of  their 
hands  or  that  of  their  families  ? 

The  revenue  bill  as  proposed  by  the  House  did  not 
make  any  material  change  in  the  law  of  1861,  but  when 
the  bill  reached  the  Senate,  Mr.  Fessenden,  chairman  of 
the  Committee  on  Finance  proposed  an  amendment  limit- 
ing the  3  per  cent  rate  to  incomes  under  $10,000  and  mak- 
ing the  rate  5  per  cent  on  incomes  over  $10,000  and  7^ 
per  cent  on  those  over  $50,000,  the  exemption  being  fixed 
at  $600.  These  higher  rates,  which  mark  the  beginning 
of  the  progressive  principle,  were  probably  deemed  neces- 
sary in  view  of  the  fact  that  the  assessment  of  the  direct 
tax  had  been  suspended  for  two  years.  The  act  was 
finally  passed  with  a  provision  repealing  the  previous  law. 


242  INCOME  TAXATION 

It  was  signed  July  1,  1862, 4  and  was  therefore  the  first 
Federal  income  tax  law  to  go  into  actual  operation.  The 
first  section  (90)  followed  to  some  extent  the  wording 
of  the  previous  act,  except  that  "annual  gains,  profits  or 
income"  was  substituted  for  "annual  income,"  the  word 
"tax"  was  changed  to  "duty,"  and  citizens  residing 
abroad  who  were  in  the  employ  of  the  United  States 
government  were  exempted  from  the  5  per  cent  tax.  The 
rate  on  incomes  generally  which  had  been  fixed  by  the 
Senate  at  iy2  per  cent  on  incomes  over  $10,000,  was 
modified  in  Committee  of  Conference  so  that  the  law,  as 
finally  passed,  provided  for  3  per  cent  on  incomes  from 
$600  to  $10,000  and  if  the  amount  of  income  exceeded 
$10,000  "a  duty  of  5  per  centum  on  the  amount  thereof 
exceeding  $600."  The  effect  of  this  provision  was  to 
exempt  $600  from  incomes  above  as  well  as  below 
$10,000;  though,  as  in  the  previous  act,  the  $600  exemp- 
tion was  not  granted  as  to  the  5  per  cent  tax  on  incomes 
of  citizens  residing  abroad. 

The  act  of  1861  apparently  referred  to  gross  income, 
but  section  91  of  the  act  of  1862  provided  that,  in  esti- 
mating the  annual  gains,  profits,  or  income,  there  should 
be  deducted: 

a.  National,  state  and  local  taxes  upon  the  property  or 
source  of  income. 

b.  All  gains,  profits,  or  income  derived  from  salaries  of 
officers,  or  payments  to  persons  in  the  civil,  military,  naval, 
or  other  service  of  the  United  States,  including  senators, 
representatives,  and  delegates  in  Congress,  above  six  hun- 
dred dollars,  or  derived  from  interest  or  dividends  on  stocks, 


4.  12  Statutes  at  Large.  Ch.  119,  p.  473,  §§  90-93.  The  earlier 
portions  of  this  chapter  constitute  the  Tariff  Act.  §§  81,  82  and  86 
contain  provisions  for  collecting  the  tax  on  dividends,  etc.,  at  the 
source. 


CIVIL  WAR  INCOME  TAX  243 

capital,  or  deposits  in  any  bank,  trust  company,  or  savings 
institution,  insurance,  gas,  bridge,  express,  telegraph,  steam- 
boat, ferry-boat,  or  railroad  company,  or  corporation,  or  on 
any  bonds  or  other  evidences  of  indebtedness  of  any  rail- 
road company,  or  other  corporation,  which  shall  have  been 
assessed  and  paid  by  said  banks,  trust  companies,  savings 
institutions,  insurance,  gas,  bridge,  telegraph,  steamboat, 
ferry-boat,  express,  or  railroad  companies,  as  aforesaid,  or 
derived  from  advertisements,  or  on  any  articles  manu- 
factured, upon  which  specific,  stamp  or  ad  valorem  duties 
shall  have  been  directly  assessed  or  paid. 

This  sentence  is  given  in  full  because  its  meaning  is 
somewhat  obscure.  The  construction  placed  upon  it  by 
the  Commissioner  of  Internal  Revenue  was  as  follows:5 

The  following  deductions  will  be  made  from  the  aggre- 
gate income  of  each  person  and  the  tax  assessed  upon  the 
.remainder,  viz. :  *  *  *  Salaries  of  officers,  or  payments 
to  persons  in  the  service  or  employment  of  the  United 
States  from  which  a  deduction  of  three  per  cent  has  been 
made  by  the  disbursing  officers  of  the  government. 

Interest  or  dividends  on  stock,  capital  or  deposits  in  any 
bank,  trust  company  or  savings  institution,  insurance,  rail- 
road company  or  corporation,  from  which  interest  or 
dividends  a  duty  of  three  per  cent,  shall  have  been  withheld 
by  the  officers  of  such  companies,  corporations  or  associa- 
tions ;  interest  from  any  bonds  or  other  evidence  of  in- 
debtedness of  any  railroad  company  or  other  corporation 
from  which  a  duty  of  three  per  cent,  shall  have  been  de- 
ducted by  the  officers  of  such  company  or  corporation ;  and 
receipts  derived  from  advertisements  on  which  a  duty  shall 
have  been  assessed  or  paid.  Also  the  sum  of  $600. 

The  law  further  provided  that  upon  income  derived 
from  notes,  bonds  or  other  securities  of  the  United 
States  "there  shall  be  levied,  collected  and  paid  a  duty 
not  exceeding  one  and  one-half  of  one  per  centum,  any- 
thing in  this  act  to  the  contrary  notwithstanding."  It  is 
not  clear  whether  the  exemption  of  $600  was  to  be  al- 
lowed in  such  a  case  or  not,  but  as  a  matter  of  practice  it 


See  Boutwell,  Direct  and  Excise  Taxation  in  the  U.  S.,  p.  197. 


244  INCOME  TAXATION 

was.  The  lower  rate  on  United  States  bonds  was  no 
doubt  designed  to  make  them  more  attractive  to  investors. 

The  act  further  provided  that  "duties  on  incomes" 
should  be  payable  on  or  before  June  30,  1863,  and  each 
year  thereafter  until  and  including  the  year  1866.  The 
remainder  of  the  act  related  to  the  duties  of  the  collectors 
in  assessing  and  collecting  the  tax. 

It  is  significant  that  throughout  the  law  the  word 
"duty"  is  constantly  used  instead  of  "tax,"  the  evident 
intent  being  to  distinguish  it  clearly  from  the  $20,000,000 
direct  tax  levied  and  apportioned  by  the  law  of  Aug.  6, 
1861. 

The  next  revision  of  the  income  tax  law  is  found  in 
the  general  revenue  act  of  June  30,  1864.6  The  bill  at 
first  provided  for  a  tax  of  5  per  cent  on  all  incomes  over 
$600,  but  the  House  voted  a  rate  of  7^  per  cent  on 
amounts  over  $10,000  and  10  per  cent  on  the  excess  over 
$25,000.  This  proposition  gave  rise  to  much  discussion 
as  to  the  equity  and  justice  of  a  progressive  tax — Senator 
Sumner  being  among  those  who  favored  the  progressive 
principle.  When  the  bill  finally  emerged  from  the  Com- 
mittee of  Conference  it  provided  for  a  5  per  cent  rate 
from  $600  to  $5,000,  7^  per  cent  from  $5,000  to  $10,000 
and  a  10  per  cent  rate  for  all  incomes  above  the  latter 
amount.  It  also  made  numerous  changes  in  the  pro- 
visions for  the  administration  of  the  law  and  extended  its 
operation  "until  and  including  the  year  1870  and  no 
longer."  The  bill  was  passed  in  this  form,  but  before  it 
went  into  effect  it  was  amended  by  the  act  of  March  3, 
1865,7  which  abolished  the  ll/2  per  cent  rate  and  pro- 


13  Stat.  at  Large  Ch.  173,  p.  281,  §§  116-123. 
13  Stat.  at  Large,  Ch.  78,  p.  479,  §  1. 


CIVIL  WAR  INCOME  TAX  245 

vided  for  a  tax  of  10  per  cent  on  all  incomes  over  $5,000. 
These  rates  marked  the  highest  point  fixed  by  any  of  the 
laws  and  amendments. 

In  July,  1864,  Congress  by  a  joint  resolution  levied  a 
supplementary  income  tax  for  the  purpose  of  raising 
bounties.  This  tax  applied  to  income  of  1863  and  con- 
sisted of  a  levy  of  5  per  cent  on  all  incomes  over  $600. 
The  resolution  was  passed  July  4,  1864,8  and  the  tax  was 
to  be  assessed  October  1,  1864.  As  it  was  additional  to 
other  taxes  it  had  the  effect  to  raise  the  total  rate  for  in- 
come received  in  1863  to  8  per  cent  on  incomes  between 
$600  and  $10,000  and  10  per  cent  on  incomes  over 
$10,000. 

The  law  of  June  30,  1864,  was  amended  by  the  acts 
of  March  3,  1865,  March  10,  1866,  and  July  13,  1866, 
the  amendments  referring  more  specifically  to  details  of 
administration. 

In  the  latter  part  of  the  year  1866,  it  was  evident  that 
the  finances  of  the  government  were  in  such  a  condition 
as  to  permit  a  reduction  in  taxation,  and  the  act  of  March 
2,  1867,9  raised  the  exemption  to  $1,000  and  provided 
for  a  uniform  5  per  cent  rate  on  all  income  in  excess  of 
that  sum. 

In  1870  the  question  of  continuing  the  income  tax 
was  raised  and  the  subject  received  more  attention  than 
had  been  accorded  to  it  at  any  previous  period.  This  was 
partly  due  to  the  report  of  special  commissioner  David 
A.  Wells,  who  recommended  the  reduction  of  the  rate  to 
3  per  cent,  claiming  that  fully  as  much  could  probably 
be  raised  at  the  lower  figure  as  on  a  5  per  cent  basis.  He 


8.  13  Stat.  at  Large,  p.  417. 

9.  14  Stat.  at  Large,  Ch.  169,  p.  477. 


246  INCOME  TAXATION 

proposed  that  the  amount  of  exemption  should  be  fixed 
at  $1,000  with  an  additional  exemption  of  not  to  exceed 
$200  for  house  rental.10  The  attitude  of  Mr.  Wells  at 
this  period  is  interesting  as  contrasted  with  his  bitter  at- 
tack upon  the  income  tax  of  1894.11  Among  the  striking 
statistics  which  he  submitted  was  the  fact  that  the  tax 
was  paid  in  the  year  1868  by  only  250,000  persons  out  of 
the  entire  population  of  almost  40,000,000.  There  was 
a  strong  majority  in  favor  of  the  retention  of  the  tax  in 
the  House,  while  the  Senate  was  very  evenly  divided. 
Among  those  who  favored  the  tax  Senator  Sherman  took 
the  most  prominent  part.  One  of  his  arguments  was  that 
if  the  law  was  not  retained  there  would  be  a  deficit  which 
would  have  to  be  met  by  some  other  form  of  taxation. 
This  is  the  argument  which  has  been  so  often  used  in 
defense  of  the  English  income  tax.  The  Senate  first 
agreed  to  strike  out  the  income  tax  by  a  vote  of  34  to  23. 
This  vote  was  taken  in  committee  of  the  whole ;  and  when 
sitting  in  ordinary  session  the  Senate,  by  a  vote  of  26  to 
22,  concurred  in  the  action  of  the  committee.  A  motion 
to  reconsider  was  carried  by  a  vote  of  26  to  25 ;  certain 
amendments  were  restored  to  the  bill  by  a  vote  of  26  to 
22 ;  and  a  final  motion  to  strike  out  the  amendments  was 
lost  by  a  tie  vote.  It  will  thus  be  seen  that  the  sentiment 
against  the  bill  was  very  strong  in  the  Senate.  The  op- 
position in  the  House  also  became  more  powerful,  as  is 
shown  by  the  fact  that  an  effort  which  was  made  to  re- 
peal the  bill  in  1871  only  lacked  one  vote  of  being  suc- 
cessful. The  income  tax  expired  by  virtue  of  the  limita- 


10.     Cf.  Bankers'  Magazine,  Vol.  48,  pp.  428-435. 

ai.  David  A.  Wells.  "An  Income  Tax:  is  it  desirable?"  The 
Forum,  Vol.  17,  pp.  1-13.  Mar.  1894.  "Is  the  existing:  income  tax 
unconstitutional?"  The  Forum,  Vol.  18,  pp.  536-542,  Jan.,  1895. 


CIVIL  WAR  INCOME  TAX  247 

tion  imposed  by  Section  6  of  the  act  of  July  14,  1870, 12 
which  levied  a  tax  for  the  years  1870  and  1871  and  no 
longer.13  It  should  be  stated  however  that  collections 
continued  to  be  made  under  the  law  until  the  close  of  the 
year  1873. 

The  foregoing  is  a  condensed  and  therefore  somewhat 
incomplete  review  of  the  history  of  the  legislation  in 
reference  to  Federal  income  taxes  throughout  the  period 
they  were  in  force.14  A  clearer  view  of  what  was  at- 
tempted by  the  various  laws  may  perhaps  be  obtained  by 
taking  up  separately  some  of  the  more  important  features. 

Rates.  The  act  of  August  5,  1861,  which  provided 
for  a  tax  of  3  per  cent  on  incomes  of  over  $800,  may  be 
passed  over  as  it  was  superseded  by  the  law  of  1862. 

By  the  law  of  July  1,  1862,  the  rate 

on  incomes  above  $     600  up  to  $10,000  was 3% 

"      10,000    (less  the  $600  exemption) 5% 

from    railroad   bonds 3% 

banks,  trust  companies,   savings   institutions   and  in- 
surance  companies 3% 

from  insurance  companies  (on  gross  receipts) 1% 

"      salaries  of  United  States  officials 3% 

"      advertisements    (in   papers    having   more  than 

2,000   circulation) 3% 

"      securities  and  stocks  in  United  States  owned  by 

citizens   abroad 3% 

"      interest  on  bonds,  notes  and  securities  of  the 
United  States ll/2% 


12.  16  Stat.  at  Large,  Ch.  255,  p.  257,  §§  6-17. 

13.  The  five  per  cent  tax  on  dividends,  etc.,  expired  by  limita- 
tion Aug.  1,  1870,  and  as  the  law  extending  the  time  as  to  the  2^2% 
tax  did  not  go  into  effect  until  Jan.  1,  1871,  the  5%  tax  was  not  levied 
for  1870. 

14.  For  an  excellent  and  more  complete  review  of  the  subject 
see  The  Civil  War  Income  Tax,  by  Joseph  A.  Hill,  in  Vol.  VIII  of 
Quarterly  Journal  of  Economics,  p.  416. 

An  analysis  of  such  portions  of  the  various  acts  as  were  em- 
bodied in  the  subsequent  law  of  1894,  is  given  in  "A  Treatise  on  the 
Federal  Income  Tax,"  by  Foster  and  Abbott,  1895.  See  also  Gould 
and  Tucker,  "The  Federal  Income  Tax  Explained,"  1894. 


248  INCOME  TAXATION 

The  Joint  Resolution  of  July  4,  1864,  had  the  effect 
to  raise  the  personal  income  taxes  for  the  year  1863  fixed 
at  3  per  cent  and  5  per  cent  to  8  per  cent  and  10  per  cent 
respectively. 

The  law  of  June  30,  1864,  provided  the  following 
rates  : 

Over  $     600  and  not  exceeding  $  5,OOQ 5     % 

5,000     "       "  10,000 iy2% 

10,000  ..10     % 

Railroad,  canal  and   steamboat   companies,  etc. 

(on   gross  receipts) V/2% 

Express  Companies  (on  gross  receipts) 3     % 

Insurance      "  "  "      ; ...,\l/2% 

Telegraph  "       5    % 

Gross  receipts  of  theaters,  operas,circuses,  etc..  ..2    % 

Bank  Deposits 1/24  of  1% 

Lotteries  (on  gross  receipts) 5     % 

Advertisements    3     % 

Stock  dividends  in  banks,  insurance  companies...  5     % 
Salaries  of  United  States  officials 5% 

The  law  of  March  3,  1865,  fixed  the  rates  on  personal 
income  as  follows : 

Above  $   600  and  not  exceeding  $5,000 5    % 

$5,000    10% 

The  law  of  March  2,  1867,  fixed  the  tax  on  incomes 
of 

Over  $1,000  at 5    % 

The  law  of  July  14,  1870,  levied  a  tax  on  incomes 

Over  $2,000  of 

And  on  interest  on  corporate  bonds  and  dividends 
of  companies  mentioned  above 

What  reckoned  as  income.  In  the  act  of  1862  the  tax 
was  levied  upon  "the  annual  gains,  profits  or  income  of 
every  person  residing  in  the  United  States,  whether  de- 
rived from  any  kind  of  property,  rents,  interest, 
dividends,  salaries,  or  from  any  profession,  trade,  em- 
ployment or  vocation  carried  on  in  the  United  States,  or 
elsewhere,  or  from  any  other  source  whatever." 


CIVIL  WAR  INCOME  TAX  249 

The  law  of  1864  followed  the  same  form;  but,  instead 
of  specifying  a  separate  rate  for  interest  upon  notes, 
bonds  and  other  securities  of  the  United  States,  provided 
that  such  interest  should  be  treated  as  general  income. 

The  law  of  1867  added  to  the  above  definition  of  in- 
come: 

Profits  realized  within  the  year  from  sales  of  real  estate 
purchased  within  the  year  or  within  two  years  previous  to 
the  year  for  which  income  was  [is]  estimated;  interest  re- 
ceived or  accrued  upon  old  [all]  notes,  bonds  and  mort- 
gages, or  other  forms  of  indebtedness  bearing  interest, 
whether  paid  or  not,  if  good  and  collectable,  less  the  in- 
terest which  has  become  due  from  said  person  during  the 
year ;  the  amount  of  all  premium  on  gold  and  coupons ;  the 
amount  of  sales  of  live  stock,  sugar,  wool,  butter,  cheese, 
pork,  beef,  mutton,  or  other  meats,  hay  and  grain,  or  other 
vegetable  or  other  production,  being  the  growth  or  produce 
of  the  estate  of  such  person,  not  including  any  part  thereof 
consumed  directly  by  the  family ;  all  other  gains,  profits,  and 
income  derived  from  any  source  whatever,  except  the  rental 
value  of  any  homestead  used  or  occupied  by  any  person  or 
by  his  family  in  his  own  right,  or  in  the  right  of  his  wife ; 
and  the  share  of  any  person  of  the  gains  and  profits  of  all 
companies,  whether  incorporated  or  partnership,  who  would 
be  entitled  to  the  same,  if  divided,  whether  divided  or  other- 
wise, except  the  amount  of  income  received  from  institutions 
or'  corporations  whose  officers,  as  required  by  law,  withhold 
a  percentum  of  the  dividends  made  by  such  institutions,  and 
pay  the  same  to  the  officer  authorized  to  receive  the  same ; 
and  except  that  portion  of  the  salary  or  pay  received  for 
services  in  the  civil,  military,  naval,  or  other  service  of  the 
United  States,  including  senators,  representatives  and  dele- 
gates in  Congress,  from  which  the  tax  has  been  deducted. 

It  has  seemed  worth  while  to  give  this  definition  in 
full  as  it  has  been  followed  closely  in  the  law  of  1894, 
and  the  income  tax  laws  of  some  states. 

Exemptions  and  Deductions.  As  may  be  seen  from 
the  statement  of  rates  the  exemptions  were  successively 
$600,  $1,000  and  $2,000.  By  the  act  of  1862  certain 
national,  state  and  local  taxes,  as  well  as  income,  the  tax 
upon  which  had  been  collected  at  the  source,  could  be  de- 


250  INCOME  TAXATION 

ducted  from  total  taxable  income.  The  amendment  of 
March  3,  1863,  provided  that  in  estimating  income  the 
amount  actually  paid  by  any  person  for  the  rent  of  the 
dwelling  house  or  estate  on  which  he  resided  could  be 
deducted  from  his  income.  This  provision  was  extended 
by  the  law  of  1864,  so  that  "the  amount  paid  by  any  per- 
son for  the  rent  of  the  homestead  used  or  occupied  by 
himself  or  his  family,  and  the  rental  value  of  any  home- 
stead used  or  occupied  by  any  person  or  by  his  family  in 
his  own  right,  or  in  the  right  of  his  wife"  should  not  be 
treated  as  income.  The  object  of  this  provision  was  to 
place  owners  and  renters  of  houses  on  an  equal  footing; 
but  the  same  end  could  have  been  obtained  and  more  tax 
collected  by  following  the  plan  usually  adopted  in  other 
countries  of  not  allowing  any  deduction  for  rent  and 
requiring  the  owner  of  a  home  to  account  for  its  rental 
value  as  income.  By  the  act  of  1862,  the  taxes  which 
could  be  deducted  were  limited  to  those  paid  upon  sources 
of  income;  but  the  law  of  1867  provided  for  a  deduction 
of  "all  national,  state,  county  and  municipal  taxes  paid 
within  the  year." 

Among  other  deductions  allowance  was  made  for  "the 
losses  actually  sustained  during  the  year  arising  from 
fires,  shipwrecks  or  incurred  in  trade  and  debts  ascer- 
tained to  be  worthless,  but  excluding  all  estimated  de- 
preciation of  value."  The  cost  of  ordinary  or  usual  re- 
pairs could  be  deducted,  but  amounts  paid  for  new  build- 
ings or  permanent  improvements,  or  other  betterments 
made  to  increase  the  value  of  property  were  not  to  be 
reckoned.15 


15.  For  a  more  detailed  account  of  deductions  and  numerous 
rulings  thereon  see  Foster  and  Abbot,  a  Treatise  on  the  Federal  In- 
come Tax,  1895. 


CIVIL  WAR  INCOME  TAX  25! 

Administration.  The  provisions  made  for  adminis- 
tering the  law  seem  very  crude,  incomplete  and  inade- 
quate when  compared  with  similar  provisions  in  other 
countries ;  but  it  must  be  remembered  that  great  advances 
have  been  made  in  the  administration  of  income  tax  dur- 
ing the  past  fifty  years.  The  administration  of  the  Civil 
War  Income  Tax  devolved  upon  the  assessors  of  Internal 
Revenue,  who  were  under  the  general  supervision  of  the 
Commissioner  of  Internal  Revenue.  The  time  for  assess- 
ment was  originally  fixed  as  the  first  of  May  and  the  tax 
became  due  on  or  before  June  30;  but  these  dates  were 
changed  by  the  act  of  1867,  to  March  30  and  April  30  re- 
spectively. The  penalties  provided  for  were  at  first  an 
addition  of  5  per  cent  to  the  amount  of  the  tax  remain- 
ing unpaid;  afterwards  10  per  cent;  and  by  the  law  of 
1867,  5  per  cent,  with  interest  at  one  per  cent  a  month 
until  the  tax  was  paid.  All  persons  were  required  to 
make  and  render  a  return  of  the  amount  of  their  income, 
gains  and  profits  which  was  to  be  verified  by  the  oath  or 
affirmation  of  the  party  rendering  it.16  In  case  of  neglect 
or  refusal  to  make  such  return,  or  in  case  of  a  fraudulent 
declaration,  the  assessor  was  authorized  to  prepare  a  re- 
turn "according  to  the  best  information"  he  could  obtain 
"by  the  examination  of  such  person  or  his  books  or  ac- 
counts, or  any  other  evidence,"  and  in  such  case  50  per 
cent  was  added  to  the  tax  due  on  the  list  as  made  out  by 
the  assessor.  In  all  cases  of  false  or  fraudulent  lists  or 
returns  however  the  penalty  was  100  per  cent.  The  right 


16.  When  the  tax  first  went  into  effect  the  Commissioner  of 
Internal  Revenue  gave  instructions  that  returns  should  not  be  made 
public;  but,  there  being  no  law  against  publicity  in  this  respect, 
newspaper  enterprise  soon  led  to  the  printing  of  the  lists,  and  this 
practice,  which  was  thought  to  be  conducive  to  more  complete  re- 
turns, was  kept  up  until  forbidden  by  the  law  of  1870. 


252 


INCOME  TAXATION 


of  appeal  was  granted  from  the  decision  of  the  assistant 
assessor  to  the  district  assessor  and  from  the  latter  to 
the  Commissioner  of  Internal  Revenue,  whose  judgment 
in  the  matter  was  final. 

Results.  The  numerous  changes  in  rates  and  the 
manner  in  which  collections  for  taxes  levied  in  any  one 
year  were  made  in  subsequent  years,  render  it  difficult  to 
trace  the  exact  yield  of  the  tax  for  any  particular  year. 
From  the  standpoint  of  annual  collections,  however,  the 
following  statement  and  comparison  can  be  made : 


Year 

1863 

1864 

1865 

1866 

1867 

1868 

1869 

1870 

1871 

1872 

1873 


Total  Income  Tax 
$  2,741,858 
20,294.731 
60,979,329 
73,434,709 
66,014,429 
41,455,598 
34,791,855 
37,775,873 
19,162,650 
14,436,861 
5,062,311 


Total 

Internal  Revenue 
$  41.003,192 
117,145,748 
211,129,529 
310,906,984 
265,920,424 
191,180,564 
160,039,344 
185,235,867 
144,011,176 
131,770,946 
114,075,486 


Percentage  of 

Income  Tax  to 

total  Revenue 

6.68 

17.3 

28.3 

23.6 

24.8 

21.6 

21.7 

20.3 

13.3 

10.5 
4.4 


Total          $376,150,204  $1,872,419,260  Average  20.% 

The  following  are  the  amounts  collected  in  each  of 
the  states,  omitting  the  income  tax  collected  on  salaries 
of  United  States  officials  and  a  portion  of  the  Special  In- 
come Tax  of  1864,  as  to  the  apportionment  of  which  be- 
tween the  states  we  are  not  informed :" 


17.  Computed  from  table  on  last  page  of  memorandum  sub- 
mitted April  11,  1910,  by  Joseph  H.  Choate  and  others  to  the  Legis- 
lature of  the  State  of  New  York  in  opposition  to  the  16th  Amend- 
ment. This  table  does  not  include  $28,929,312  which,  according  to 
Dr.  Hill,  was  collected  in  1866,  from  the  Special  Income  Tax  of 
1864,  and  neither  of  the  tables  entirely  agrees  with  the  statistics  fur- 
nished by  the  Secretary  of  the  Treasury,  which  are  found  in  Vol.  26, 
Part  III,  of  the  Congressional  Record  on  page  1812  (paging  of  daily 
issues)*  under  proceedings  of  Jan.  31,  1894.  Secretary  Carlisle 
gives  the  total  amount  collected  from  the  Civil  War  Income  Tax  as 
$347,220,897.86.  By  a  table  attributed  to  Senator  Sherman  found  in 


CIVIL  WAR  INCOME  TAX  253 

Alabama  $       982,244.62 

Arizona   26,683.73 

Arkansas 218,225.70 

California   10,089,645.91 

Colorado 370,669.33 

Connecticut  9,412,456.91 

Dakota  4,277.12 

Delaware   1,159,877.19 

District  of  Columbia 1,891,688.63 

Florida       115,097.60 

Georgia  1,735,509.47 

Idaho    160,783.19 

Illinois   16,117,899.54 

Indiana   5,465,092.63 

Iowa      2,268,722.97 

Kansas 590.858.51 

Kentucky 6,649,125.86 

Louisiana   2,772,947.48 

Maine    2,140,077.29 

Maryland   9,712,633.07 

Massachusetts  41,272,296.39 

Michigan    4,532,645.31 

Minnesota  647,965.64 

Mississippi   392,682.03 

Missouri    7,011,635.64 

Montana   185,845.88 

Nebraska    242,729.86 

Nevada   693,124.45 

New   Hampshire 1,523,091.56 

New  Jersey 12,946,168.80 

New  Mexico 125,771.65 

New  York 104,330,088.10 

North   Carolina 357,661.75 

Ohio    22,429,587.51 

Oregon   782,341.66 

Pennsylvania   47,463,886.81 

Rhode  Island 6,083,854.39 

South    Carolina 642,206.26 

Tennessee  1,845,352.08 

Texas 739,600.62 

Utah    148,039.20 

Vermont  1,303,035.48 

Virginia  1,253,976.14 

Washington  147,830.41 

West  Virginia 978,992.33 

Wisconsin    2,877,842.99 

Wyoming  11,834.63 


$332,854,604.42 


Vol.  26  of  the  Congressional  Record,  Part  9,  on  page  7883  (daily 
paging),  June  22,  1894,  the  total  amount  is  given  as  $346,967,388.12. 
*  (There  is  a  wide  divergence  between  the  paging  of  the  daily  issues 
of  the  Congressional  Record  of  this  period  and  that  of  the  bound 
volumes.  Our  references  are  to  the  pages  of  the  daily  issues.) 


254  INCOME  TAXATION 

Upon  the  basis  of  sources  from  which  the  income 
taxes  were  collected  the  following  classification  may  be 
made : 

3     %  Tax  on  incomes  $600  to  $10,000  (Years  '63,  '64  and 

'65)    ' $  17,814,170 

5     %  Tax  on  incomes  over  $10,000   (Years  '63,  '64  and 

'65)    16,494,961 

5     %  Tax  on  incomes  $600  to  $5,000    (Years   '65,  '66, 

>67)     49,139.423 

10     %  Tax  on  incomes  over  $5,000  (Years  '65,  '66,  '67)  .  .  60,851,011 

5     %  Tax  on  incomes  $1,000  (Years  '67  to  '71) 103,787,865 

2l/2%  Tax  on  incomes  $2,000   (Years  '71,  '72,  '73) 16,097,921 

5     %  of  income  from  property  of  citizens  residing  abroad 

(Years  '63,  '64,  '65) 230,470 

1^2%  income  from  interest  on  United  States  securities 

(Years  '63,  '64,  '65) 212,413 

Bank  dividends  and  surplus 27,854,024 

Bank    profits    undivided 1,279,690 

Canal  Companies'  dividends 1,785,812 

Insurance  Companies'  dividends 5,689,070 

Railroad  Companies'  dividends 21,416,738 

Interest  on  bonds 9,987,844 

Turnpike  Companies'  dividends 237,324 

Salaries  United  States  officials 13,889,604 

Special  Income  Tax  of  1864 29,381,862 

Total $376,150,202 

As  to  the  number  of  persons  assessed,  the  statistics 
are  not  obtainable  for  the  first  three  years.  The  total 
number  for  the  year  1866  was  460,170,  which  was  no 
doubt  the  largest  number  reached  in  any  year.  Mr. 
Joseph  A.  Hill  has  computed  the  numbers  for  each  sub- 
sequent year  as  approximately : 

.  1867 266,135  1870 276,661 

1868 254.617  1871 74,775 

1869 272,843  1872 72,949 

As  the  population  of  the  United  States  at  this  period 
was  about  40,000,000  it  will  be  seen  that  the  number  of 
persons  who  paid  income  tax  in  1866,  was  a  little  over 
one  per  cent  of  the  population,  while  in  the  later  years  it 
varied  from  two-thirds  of  one  per  cent  to  less  than  one- 
fifth  of  one  per  cent. 


CIVIL  WAR  INCOME  TAX  255 

For  the  year  1867  in  which  the  statistics  appear  to  be 
most  complete  and  reliable  Mr.  Hill  has  classified  the  tax- 
payers as  follows  :18 

Number  returning  incomes : 

Over  $  1,000  and  not  over  $  1,400  101,219 

1,400  "        "        "  2,000  68,680 

2,000  "        "        "  3,000  40,899 

3,000  "        "        "  11,000  46,055 

11,000  9,282 

Another  classification  made  on  the  basis  of  amount 
of  tax  paid  by  each  individual  in  18C8  is  as  follows: 

Number  who  paid  tax  of  $  20  100,558 

"         '•          "     "        20  to  $  50  55,949 

"          "          "     "        50    "  100  38,957 

"     "      100    "  200  51,188 

"        "        "     "     over  200  7,965 

It  has  been  estimated  upon  the  basis  of  these  figures 
that  only  twenty- four  thousandths  of  one  per  cent  of  the 
population  in  that  year  paid  taxes  on  incomes  of  more 
than  $4,000.  It  also  appears  that  the  amount  collected  in 
that  year  from  income  taxes  was  only  nineteen  one-hun- 
dredths  of  one  per  cent  of  the  total  assessed  valuation.19 

Considered  geographically  and  adopting  the  old 
method  of  grouping  the  States,  it  appears  that 

the  Middle  States             paid  53.1%  of  the  tax. 

the  New  England  States    "  18.4%  "     " 

the   Western    States            "  19.2%  "     "     " 

the  Southern  States             "  5.6%  "     "     " 

the   Pacific   States               "  3.4%  "     "     <; 


Total     100% 

It  is  obvious  that  these  proportions  would  be  greatly 
changed  under  present  conditions.     The  small  amount 


18.  The  Civil  War  Income  Tax  by  Joseph  A.  Hill.     Quarterly 
Journal  of  Economics,  Vol.  VIII.     No.  4.    July  1894. 

19.  Estimate  of  the  probable  or  possible  revenue  under  the  pro- 
posed income  tax  (of  1894)  by  Worthington  C.  Ford,  Chief  of  the 
Bureau  of  Statistics  of  the  Treasury  Department,  dated  April  3,  1894. 
Senate  Miscellaneous  Documents,  Vol.  5,  No.  232. 


256  INCOME  TAXATION 

contributed  by  the  Southern  states  is  of  course  attribut- 
able to  the  fact  that  the  taxes  could  not  be  collected  dur- 
ing the  war,  and  for  some  years  afterwards  conditions 
were  very  unfavorable  to  income  taxation.  That  these 
conditions  have  now  changed  is  evidenced  by  the  census 
report  of  1904,  which  shows  that  the  Southern  States 
have  about  one-eighth  the  wealth  of  the  country. 

It  is  evident  from  the  above  figures  that  the  adminis- 
tration of  the  tax  was  very  ineffective  and  it  seems  prob- 
able that  not  more  than  one-tenth  of  the  actual  taxable 
income  of  the  country  was  reached.  As  was  said  by 
Senator  Morrill,  on  the  floor  of  Congress,  the  income  tax 
was  after  all  but  little  more  than  the  amount  which  each 
individual  chose  to  pay  on  his  own  estimate  of  his  in- 
come. It  is  probable  that  many  conscientious  and 
patriotic  recipients  of  small  incomes  made  honest  re- 
turns; but  it  is  certain  that  many  persons  enjoying  very 
large  incomes  found  methods  and  excuses  for  evading 
the  tax.  It  is  unfortunate  that  the  first  experience  of  our 
Federal  government  with  an  income  tax  was  surrounded 
by  conditions  which  render  it  unsafe  to  make  any  of  the 
deductions  ordinarily  to  be  drawn  from  a  fiscal  experi- 
ment of  that  character. 


B.      THE  FEDERAL  INCOME  TAX  OF  1894. 

The  second  attempt  on  the  part  of  the  Federal 
government  to  levy  a  general  income  tax  was  rendered 
nugatory  by  decisions  of  the  Supreme  Court  of  the 
United  States  holding  the  law  to  be  unconstitutional. 
These  decisions  were  of  such  far-reaching  importance  in 


INCOME  TAX  LAW  OF  1894  257 

their  relation  to  Federal  income  taxes  that  a  brief  refer- 
ence to  the  law  and  the  construction  placed  upon  it  seems 
necessary. 

The  first  mention  of  the  tax  is  found  in  President 
Cleveland's  message  of  December  4,  1893,  in  which, 
while  referring  to  the  tariff  bill,  he  said,  "The  commit- 
tee,20 after  full  consideration  and  to  provide  against  the 
temporary  deficiency  which  may  exist,  before  the  busi- 
ness of  the  country  adjusts  itself  to  the  new  tariff 
schedules,  have  wisely  embraced  in  their  plan  a  few  addi- 
tional internal  revenue  taxes,  including  a  small  tax  upon 
incomes  derived  from  certain  corporate  investments." 

It  would  seem  that  the  President  was  mistaken,  as 
the  tariff  bill,  which  the  committee  reported  December 
19,  1893,  did  not  contain  any  reference  to  income  taxes, 
and  Senator  Hill  afterwards  asserted  that  no  agreement 
had  been  reached  at  that  time  by  the  committee  in  refer- 
ence to  income  tax.  It  would  also  seem  that  the  Presi- 
dent had  in  mind  a  special  tax  upon  corporations. 

On  the  24th  of  January,  1894,  Mr.  McMillin  of 
Tennessee  introduced  a  bill  (H.  R.  5442),  "to  impose  a 
tax  on  corporate  and  individual  incomes,  to  increase  the 
tax  on  distilled  spirits  and  for  other  purposes."  The  bill 
followed  very  closely  the  provisions  of  the  Civil  War  in- 
come tax  laws  and  Mr.  McMillin  stated  in  reference  to 
the  exemption  of  interest  paid  to  depositors  in  savings 
banks,  "We  have  followed,  so  far  as  we  consistently 
could,  that  line  of  policy  which  received  judicial  con- 
struction under  the  old  law."  While  the  exemption  was 


2°.    Committee  of  Ways  and  Means  of  the  House  of  Representa- 
tives. 


258  INCOME  TAXATION 

statutory  and  the  Civil  War  income  tax  received  scarcely 
any  judicial  construction,  he  no  doubt  had  in  mind  the 
case  of  Gary  vs.  St.  Francisco  Savings  Union,  22  Wallace 
38  (1874)  in  which  the  Supreme  Court  held  that  under 
the  act  of  1864,  as  amended  in  1866,  earnings  of  savings 
banks  paid  out  as  dividends  were  taxable. 

The  bill  was  incorporated  in  the  general  Internal 
Revenue  Amendment  and  when  it  came  before  the  House 
for  action  (February  1,  1894)  an  effort  was  made  by 
Mr.  Cochran  of  New  York  to  obtain  unanimous  consent 
that  the  vote  be  confined  to  the  income  tax  proposition. 
Objection  was  made  and  the  Speaker  ruled  that  the  ques- 
tion was  not  divisible.  The  vote  on  the  amendment  was 
the  real  test  vote  as  to  income  tax  and  it  showed,  ayes 
182,  nays  48,  not  voting  122.  It  is  interesting  to  note 
that  if  those  who  voted  in  favor  of  the  law  were  classified 
according  to  geographical  divisions  there  were : 

From   southern        states 108 

western  "     69 

"      middle  3 

"      New  England  "     2 

It  thus  appeared  that  all  but  five  of  the  members  wrho 
voted  in  favor  of  the  tax  came  from  southern  or  western 
states.  The  final  vote  upon  the  whole  bill  stood  204  yeas, 
140  nays, — 8  not  voting. 

On  the  second  of  February,  1894,  the  bill  was  trans- 
mitted to  the  Senate  and  referred  to  the  Committee  on 
Finance.  It  was  reported  back  March  20,  but  the  pro- 
visions relating  to  income  tax  were  not  reached  until  the 
21st  of  June.  A  great  number  of  amendments  were 
offered  and  from  June  21  to  June  28  a  large  portion  of 
the  time  of  the  Senate  was  occupied  with  arguments  for 
and  against  the  measure  and  in  discussing  a  great  num- 


INCOME  TAX  LAW  OF  1894  259 

her  of  proposed  amendments.    The  bill  was  passed  in  the 
Senate  July  3,  1894,  by  a  vote  of  39  to  34  and,  as  the 
Senate  was  disposed  to  insist  on  its  amendments,  it  went 
to  a  Committee  of  Conference.     At  first  there  was  much 
opposition  to  the  Senate  amendments,    but    the    House 
finally  accepted  them  and,  August  28,  1894,  the  bill  was 
reported  to  the  House  as  having  become  a  law  without 
the  President's  approval.     The  most  important  amend- 
ment which  the  Senate  had  made  was  one  which  limited 
the  operation  of  the  law  to  the  first  day  of  January,  1900. 
In  its  main  features  the  bill  followed  the  law  of  1867, 
and  such  changes    as    were    made  were  not  of  such  a 
character  as  to  indicate  that  the  subject  had  received  very 
careful  consideration.     The  new  law  provided  for  a  tax 
of  2  per  cent  upon  all  incomes  exceeding  $4,000.     It  is 
difficult  to  understand  the  theory  upon  which  the  exemp- 
tion was  placed  so  high  and  even  the  Populists,  through 
Senator    Peffer,    endeavored    to    have    the    exemption 
lowered  to  $1,000,  which  was  the  amount  of  the  exemp- 
tion in  the  law  of  1867.     In  all  other  countries  the  aim 
has  been  to  make  the  exemption  equivalent  to  a  reason- 
able "minimum  of  existence,"  and  $1,000,  while  much 
higher  than  the  sums  usually  fixed  in  other  countries, 
might  possibly  be  considered  a  reasonable  exemption  in 
the  United  States;  but,  to  fix  the  exemption  at  $4,000, 
was  to  relieve  the  great  mass  of  moderate  incomes  from 
taxation  and  concentrate  the  tax  upon  a  very  small  num- 
ber of  comparatively  wealthy  people.    The  feeling  of  op- 
position which  this  provision  of  the  law  engendered  was 
reflected  by  an  article  signed  "Plain  Speaker,"  published 
in  the  North  American  Review,  in  which  the  following 
language  was  used : 


26O  INCOME  TAXATION 

The  well-to-do  will  no  more  be  able  to  stay  the  increase 
than  they  have  been  to  stay  the  imposition  of  the  tax  itself. 
They  have  all  been  separated  from  the  rest  of  the  com- 
munity, the  dividing  line  being  at  $4,000.  They  have  been 
constituted  a  class  apart,  especially  chosen  to  bear  the  burden 
of  taxation. 

It  is  not  in  human  nature  for  those  who  have  nothing, 
to  resist  the  temptation  of  increasing  the  tax  of  the  well-to- 
do.  This  increase  would  probably  be  arrived  at  by  the  in- 
sertion of  progressive  features  in  the  tax.  You  can  resist 
Socialism  and  Anarchism,  because  these  would  affect  the 
people  at  large,  but  a  progressive  tax  on  income  and  in- 
heritances would  fall  immediately  but  on  the  few. 

You  can  declare  that  it  is  visionary — it  is  very  actual 
and  real.  Yet  it  may  be  made  to  go  as  far  as  the  wildest 
Socialist  dream.  Once  admitting  the  principle,  that  a  small 
portion  of  the  community  can  be  penned  off  for  taxation 
without  the  rest — a  portion  that  must  necessarily  be,  if  not 
unpopular,  at  least  the  subjects  of  envy  on  the  part  of  the 
many,  and  their  sacrifice  must  follow.21 

Among  the  many  defects  and  incongruities  in  this  act, 
the  following  may  be  mentioned : 

1.  The  $4,000  exemption  did  not  apply  to  corpora- 
tions and,  therefore,  the  man  who  had  $3,000  income 
from  corporate  dividends  would  be  taxed,  while  one  who 
received  the  same  sum  from  other  sources  would  not. 

2.  The  act  applied  to  all  personal  property  acquired 
by  gift  or  inheritance.     This  was  objectionable,  because 

a).  Successions  are  irregular  and  not  periodic  and 
are  therefore  not  properly  income. 

b).  Because  inheritances  are  otherwise  taxed  in 
many  states. 

c).  Because  a  discrimination  was  made  against  all  per- 
sons receiving  personal  property  by  inheritance.  The  re- 
sult was  that  a  man  who  inherited  real  estate  of  the  value 
of  $100,000  would  be  free  from  the  income  tax,  while 


21.    North  American  Review.  Vol.  160,  p.  605. 


INCOME  TAX  LAW  OF  1894  26 1 

the  man  who  inherited  $100,000    of    personal  property 
would  have  to  pay  $2,000  taxes. 

3.  While  the  act  provided  that  "nothing  herein  con- 
tained shall  apply  to  states,  counties  or  municipalities," 
there  was  no  express  exemption  of  corporations  the  stock 
of  which  might  be  owned  by  a  state  or  municipality  and 
be  used  for  the  discharge  of  slate  or  municipal  func- 
tions.22 

4.  The  act  did  not  exempt  the  salaries  of  the  Presi- 
dent and  Federal  Judges.    The  constitution  provides  that 
the  compensation  of  such  officers  shall  not  be  diminished 
during  their  continuance  in  office.     There  is  good  au- 
thority for  believing  that  such  salaries  cannot  be  taxed 
without  an  amendment  to  the  constitution.23 

5.  Under  the  wording  of  the  law  farmers  were  not 
taxed  upon  the  amount    of    produce  retained  and  con- 
sumed by  their  families  and  were  thus  given  a  deduction 
not  accorded  to  others. 

6.  Section  28  of  the  act  refers  to  income  or  salary 
upon  which  a  tax  has  not  been  paid  by  the  employer, 
"where  the  employer  is  required  by  law  to  pay  on  the  ex- 
cess of  over  $4,000 ;"  but  the  act  failed  to  make  any  pro- 
vision   for    the    payment   by    employers    on   the    excess 
specified. 

7.  No  provision    was    made   for  collection  at  the 
source,  except  in  the  case  of  salaries    of    Government 


22.  The  Collector  v.  Day,  11  Wall.  113.  U.  S.  v.  Bait.  &  O.  R.  R. 
Co.  17  Wall.  322. 

23.  See  letter  of  Chief  Justice  Taney  to  Secretary  of  the  Treas- 
ury, February  16,  1863,  in  Tyler's  Life  of  Taney,  pp.  432-435.     Opin- 
ion of  E.  R.  Hoar,  Attorney-General,  Oct.  23,  1869,  Opinions  of  At- 
torneys-General, Vol.  13,  p.  367. 


262  INCOME  TAXATION 

officials  and  in  such  case,  the  collections  would  of  course 
he  for  the  current  year,  while  all  other  persons  were  pay- 
ing upon  the  income  of  the  preceding  year. 

8.  No  distinction  was  made  between  earned  and  un- 
earned incomes  nor  was  any  variation  made  in  the  ex- 
emption according  to  the  size  of  families  and  the  number 
of  persons  whom  the  taxpayer  had  to  support. 

In  order  to  understand  the  force  and  effect  of  the 
decisions  of  the  Supreme  Court  declaring  the  Income 
Tax  Law  of  1894  unconstitutional,  it  is  necessary  to  re- 
view certain  decisions  which  had  been  previously 
rendered.  These  decisions  are : 

1.  Hylton  vs.  United  States,  3  Dallas,  171  (1796). 

2.  Pacific  Insurance  Co.  vs.  Soule,  7  Wallace,  433 

(1868). 

3.  Veazie  Bank  vs.  Fenno,  8  Wallace,  533  (1889). 

4.  Scholey  vs.  Rew,  23  Wallace,  331  (1874). 

5.  Springer    vs.    United    States,    102    U.    S.,    586 

(1880). 

The  clauses  of  the  constitution  involved  in  each  of 
these  cases  wrere  the  following : 

"Representatives  and  direct  taxes  shall  be  apportioned 
among  the  several  states  which  may  be  included  within 
this  Union  according  to  their  respective  numbers,  which 
shall  be  determined  by  adding  to  the  whole  number  those 
bound  to  service  for  a  term  of  years,  and  excluding 
Indians  not  taxed,  three-fifths  of  all  other  persons"  *  *  * 

"No  capitation  or  other  direct  tax  shall  be  laid  unless 
in  proportion  to  the  census  hereinbefore  directed  to  be 
taken." 

In  the  first  of  the  above  decisions  it  was  held  that  a 
tax  on  carriages  could  not  be  laid  by  the  rule  of  appor- 


INCOME  TAX  LAW  OF  1894  263 

tionment  without  very  great  inequality  and  injustice  and 
that  therefore  the  constitution  could  not  have  intended 
that  an  apportionment  should  be  made.  The  court  held 
that  the  tax  on  carriages  was  an  excise  and  therefore  an 
indirect  tax.  Chancellor  Kent,  in  speaking  of  this  case 
said :  "The  better  opinion  seems  to  be  that  the  direct 
taxes  contemplated  by  the  Constitution  were  only  two, 
viz. :  a  capitation  or  poll  tax  and  a  tax  on  land." 

The  second  case  was  one  involving  the  validity  of 
taxes  on  receipts  of  insurance  companies  from  premiums. 
The  court  held  unanimously  that  the  taxes  were  not  direct 
taxes  and  were  therefore  valid. 

In  the  third  decision  the  opinion  of  the  Supreme 
Court,  delivered  by  Chief  Justice  Chase,  was  to  the  effect 
that  a  tax  of  ten  per  cent  upon  the  notes  or  circulation 
of  State  banks  was  not  a  direct  tax  which  required  ap- 
portionment. The  Chief  Justice  used  the  following 
language :  "It  may  be  rightly  affirmed  that,  in  the  prac- 
tical construction  of  the  Constitution  by  Congress,  direct 
taxes  have  been  limited  to  taxes  on  land  and  appurte- 
nances and  taxes  on  polls  or  capitation  taxes." 

In  the  fourth  case  it  was  held  that  the  succession  or 
inheritance  taxes  imposed  by  the  Acts  of  June  30,  1864, 
and  July  13,  1866,  were  not  direct  taxes  and  were  there- 
fore valid. 

In  the  case  of  Springer  vs.  United  States  the  question 
of  the  validity  of  the  income  tax  was  more  directly  in- 
volved and  the  decision  was  considered  by  many  good 
lawyers  to  sustain  fully  the  right  of  Congress  to  levy  in- 
come taxes  without  apportionment. 

Mr.  Justice  Swayne  in  delivering  the  opinion  of  the 
Court  said : 


264  INCOME  TAXATION 

"The  central  and  controlling  question  in  this  case  is 
whether  the  tax  which  was  levied  on  the  income,  gains 
and  profit  of  the  plaintiff  in  error,  as  set  forth  in  the 
record  *  *  *  is  a  direct  tax." 

In  speaking  of  the  Hylton  case  he  said : 
"It  was  well  held  that  where  such  evils  would  attend 
the  apportionment  of  a  tax  the  Constitution  could  not 
have  intended  that  an  apportionment  should  be  made. 
This  view  applies  with  even  greater  force  to  the  tax  in 
question  in  this  case.  Where  the  population  is  large  and 
the  incomes  are  few  and  small  it  would  be  intolerably  op- 
pressive." 

The  decision  closed  with  the  following  words : 
"Our  conclusions  are  that  direct  taxes  within  the 
meaning  of  the  Constitution  are  only  capitation  taxes  as 
expressed  in  that  instrument  and  taxes  on  real  estate,  and 
that  the  tax  of  which  the  plaintiff  in  error  complains  is 
within  the  category  of  an  excise  or  duty." 

It  will  be  observed  however  that  there  was  a  latent 
inconsistency  in  this  decision  in  so  far  as  it  asserted  that 
a  tax  on  land  was  a  direct  tax  and  an  income  tax  was  not 
direct.  This  left  room  for  doubt  as  to  whether  a  tax  on 
income  which  was  composed  of  the  rents  of  land,  would 
be  held  to  be  direct  or  indirect.  This  inconsistency  had 
evidently  not  been  overlooked,  and  soon  after  the  passage 
of  the  Income  Act  of  1894,  one  Charles  Pollock,  a  citizen 
of  Massachusetts,  brought  an  action  against  the  Farmers 
Loan  and  Trust  Company  of  New  York  City,  averring 
that  he  was  the  owner  and  holder  of  ten  shares  of  the 
capital  stock  of  said  company  of  a  value  exceeding 
$5,000,  and  that  he  brought  suit  not  only  in  his  own  be- 
half, but  also  as  a  representative  of  the  other  stock- 
holders. He  complained  that  the  company  was  about  to 


INCOME  TAX  LAW  OF  1894  265 

pay  a  tax  of  2  per  centum  of  its  net  profits  in  excess  of 
$4,000,  which  payment  would  diminish  the  assets  of  the 
company  and  lessen  the  dividends  on  the  shares.  It  was 
alleged  that  the  law  was  unconstitutional,  null  and  void 
for  a  variety  of  reasons,  and  among  others,  because  the 
income  of  the  Trust  Company  was  in  part  from  real 
estate  and  from  stocks  and  bonds  of  states  of  the  United 
States  and  counties  and  municipalities.24 

Certain  other  cases  which  involved  the  same  ques- 
tions, were  argued  at  the  same  time  and  the  briefs  filed 
for  and  against  the  validity  of  the  income  tax  were  pre- 
pared by  men  of  distinguished  ability.  The  formidable 
array  of  counsel  who  opposed  the  tax  comprised  such 
men  as  William  D.  Guthrie,  Benjamin  H.  Bristow, 
Clarence  A.  Seward,  Joseph  H.  Choate  and  Senator 
Edmunds.  In  defense  of  the  tax,  arguments  were  made 
by  the  Attorney  General,  Richard  Olney,  Assistant  At- 
torney General  Whitney  and  James  C.  Carter. 

Mr.  Guthrie  attacked  the  law  chiefly  on  the  ground 
of  its  discrimination  and  lack  of  uniformity.  Mr.  Seward 
argued  that  the  income  tax  was  a  direct  tax  within  the 
meaning  of  the  constitution;  while  Mr.  Choate  attacked 
the  law  as  communistic  in  its  purposes  and  tendencies  and 
insisted  strenuously  that  the  tax  was  a  direct  tax  because 
it  included  income  from  the  rental  value  of  land.  To  use 
his  own  language — 


24.  Pollock  vs.  Farmers'  Loan  and  Trust  Company,  157  U.  S. 
429.  Rehearing  158  U.  S.  601.  Owing  to  the  importance  of  this 
case  the  arguments  were  published  in  connection  with  the  opinions. 
The  report  of  the  original  trial  fills  125  pages  of  volume  157,  and 
that  of  the^  rehearing  115  pages  of  volume  158  of  the  Supreme  Court 
reports.  The  impossibility  of  giying  any  adequate  synopsis  of  the 
arguments  and  opinions  in  a  brief  space  will  be  evident,  and  we 
commend  the  reading  of  this  case  (which  can  be  found  in  almost 
every  law  library)  to  every  person  who  desires  to  understand  its 
full  import. 


266  INCOME  TAXATION 

I  say  that  a  tax  on  land  yielding  income  by  whatever 
name  is  in  reality,  in  effect  and  substance,  a  tax  upon  the 
rental.  *  *  *  Was  it  intended  that,  although  Congress 
could  not  put  an  unapportioned  tax  upon  real  estate,  it  could 
put  an  unapportioned  tax  upon  rent  of  real  estate  and  so 
eat  all  the  real  estate  up?  How  can  a  man  pay  this  five 
years'  annual  tax  on  the  rent  of  real  estate?  Absolutely 
only  out  of  the  rental.  Would  any  free  people,  if  they  had 
prohibited  a  land  tax,  submit  to  a  tax  on  rentals  ? 

He  pointed  out  some  of  the  incongruities  in  the  law 
which  have  already  been  mentioned,  complained  of  the 
lack  of  uniformity  in  its  application,  and  called  attention 
to  the  fact  that  the  tax  in  so  far  as  it  applied  to  municipal 
bonds  was  an  interference  with  state  sovereignty. 

In  support  of  the  tax  it  was  claimed  that  the  tax  was 
not  a  direct  tax;  that  the  uniformity  required  by  the  con- 
stitution was  simply  geographical  uniformity;  that  a  tax 
on  income  was  not  a  tax  on  land  especially  as  much  land 
did  not  produce  income;  that  there  was  no  impropriety 
in  taxing  state  securities,  but,  if  there  were,  the  law 
would  be  invalid  only  as  to  them;  and  that  the  inequalities 
in  the  law  were  inseparable  from  all  tax  legislation.  Mr. 
Carter,  in  answering  the  argument  that  the  law  was  class 
legislation,  met  the  issue  squarely  and  used  the  following 
vigorous  language: 

It  is  said  to  be  class  legislation,  and  to  make  a  distinc- 
tion between  the  rich  and  the  poor.  It  certainly  does.  It 
certainly  is  class  legislation  in  that  sense.  That  was  its  very 
object  and  purpose.  This  is  a  distinction  which  should  al- 
ways be  looked  to  in  the  business  of  taxation.  Unfortunate- 
ly heretofore  it  has  been  observed  in  the  wrong  direction, 
as  I  have  already  pointed  out,  and  the  poorer  class  pro- 
digiously over-burdened. 

It  is  said  also  to  be  sectional  legislation,  and  that  too  is 
true.  It  is  so,  not  in  terms,  but  in  operation  and  effect ;  but 
it  is  so  only  because  wealth  has  become  sectional.  If  either 
of  the  two  objections  alluded  to  could  be  allowed  to  prevail, 


INCOME  TAX  LAW  OF  1894  267 

it  would  be  forever  impossible  for  this  country  to  lay  any 
income  tax  whatever.  Such  features  belong  to  the  very 
nature  of  an  income  tax. 

He  also  claimed  that  the  constitutionality  of  the  law 
had  been  settled  by  the  decisions  in  the  five  cases  which 
have  been  referred  to  above.  As  to  the  question  of  tax- 
ing incomes  from  State  and  municipal  bonds  he  said : 

I  think  the  objection  is  untenable,  first,  because  if  the 
tax  is  a  tax  upon  any  state  agency,  it  is  a  tax  upon  the  bor- 
rowing power,  and  this  is  not  necessary  to  municipalities, 
or  even  to  States,  in  any  such  sense  or  degree,  as  it  is  neces- 
sary to  the  United  States.  The  great  exigency  of  war, 
which  is  the  principal  case  calling  for  an  exercise  of  the 
borrowing  power,  if  not  the  only  one  in  which  loans  are 
absolutely  necessary,  does  not  rest  upon  the  States.  Their 
existence,  with  all  their  functions  can  be  maintained  by 
means  of  revenue  derived  from  taxation,  and  perhaps  it 
would  be  better  if  no  other  means  had  ever  been  resorted 
to  by  them.  In  the  next  place  this  court  has  held  what  must 
undoubtedly  be  true,  that  each  State  has  the  right  to  tax 
the  municipal  and  state  bonds  of  every  other  State,  and 
shall  it  be  said  that  the  United  States  do  not  have  the  power 
to  tax  a  species  of  property  which  every  other  State  in  the 
Union  has  the  power  of  taxing  ? 

The  decision  of  the  majority  of  the  Court  was  de- 
livered by  Chief  Justice  Fuller  and  it  held  among  other 
things : 

A  tax  on  the  rents  or  income  of  real  estate  is  a  direct 
tax  within  the  meaning  of  that  term  as  used  in  the  con- 
stitution of  the  United  States.  A  tax  upon  income  de- 
rived from  the  interest  on  bonds  issued  by  municipal  cor- 
porations is  a  tax  upon  the  power  of  the  state  and  its  in- 
strumentalities to  borrow  money  and  is  consequently  re- 
pugnant to  the  constitution  of  the  United  States. 

The  court  also  held  that  so  much  of  the  act  as  pro- 
vided for  levying  taxes  on  income  derived  from  real 
estate  or  from  the  interest  on  municipal  bonds  was  in- 
valid. 


268  INCOME  TAXATION 

There  were  three  questions  upon  which  the  court  was 
equally  divided,  to-wit: 

1.  Whether  the  void  provision  as  to  rents  and  in- 
come from  real  estate  invalidated  the  whole  act. 

2.  Whether  as  to  the  income  from  personal  property 
as  such,  the  act  was  unconstitutional    as    laying    direct 
taxes. 

3.  Whether  any  part  of  the  tax,  if  not  considered  as 
a  direct  tax,  was  invalid  for  want  of  uniformity. 

An  able  and  exhaustive  dissenting  opinion  was  filed 
by  Justice  White,  which  was  concurred  in  by  Justice 
Harlan. 

The  decision  in  the  Pollock  case  was  rendered  April 
8,  1895,  and  ten  days  later  a  petition  for  a  rehearing  was 
filed.  The  petition  was  granted  and  the  questions  remain- 
ing undecided  were  again  argued  with  great  force  and 
ability.  On  May  20,  the  court,  by  a  bare  majority  of  one, 
held  the  whole  income  tax  law  unconstitutional,  summing 
up  its  conclusions  in  the  following  words : 

First.  We  adhere  to  the  opinion  already  announced,  that 
taxes  on  real  estate  being  undisputably  direct  taxes,  taxes 
on  the  rents  or  income  of  real  estate  are  equally  direct  taxes. 

Second.  We  are  of  opinion  that  taxes  on  personal  prop- 
erty, or  on  the  income  of  personal  property,  are  likewise 
direct  taxes. 

Third.  The  tax  imposed  by  sections  twenty-seven  to 
thirty-seven,  inclusive,  of  the  act  of  1894,  so  far  as  it  falls 
on  the  income  of  real  estate  and  of  personal  property,  being 
a  direct  tax  within  the  meaning  of  the  Constitution,  and, 
therefore,  unconstitutional  and  void  because  not  apportioned 
according  to  representation,  all  those  sections,  constituting 
one  entire  scheme  of  taxation,  are  necessarily  invalid. 

Able  and  exhaustive  dissenting  opinions  were  filed  by 
Justices  Harlan,  Brown,  Jackson  and  White,  and  their 
defence  of  the  tax  was  so  vigorous  and  eloquent,  that  the 


SOUTHERN   CONFEDERACY  269 

effect  of  the  decision,  on  the  whole,  would  seem  to  have 
been  to  strengthen  the  public  sentiment  in  favor  of  an 
income  tax. 


C.      INCOME  TAXES  IN  THE  SOUTHERN  CONFEDERACY. 

It  is  a  fact  not  generally  known  in  the  North,  that  the 
Southern  Confederacy  levied  an  income  tax  designed  to 
produce  a  large  revenue;  but  the  disordered  state  of  the 
finances,  unforseen  difficulties  in  administration  and  the 
fact  that  so  large  a  proportion  of  business  men  were  in 
military  service,  combined  to  make  the  tax  much  less 
productive  than  it  would  have  been  under  normal  con- 
ditions. 

In  August,  1861,  a  direct  war  tax  of  one-half  of  one 
per  cent  was  levied  upon  all  property,  and  apportioned 
among  the  states;  but  the  serious  mistake  was  made  of 
leaving  to  the  states  the  collection  of  the  needed  sums. 
Instead  of  levying  a  tax,  all  the  states,  except  Texas  and 
South  Carolina,  borrowed  the  money,  issuing  bonds  and 
state  treasury  notes,  thus  following  the  example  of  the 
central  government  which  practically  exhausted  its  credit 
before  resorting  to  taxation.  The  Confederate  con- 
gress, in  April,  1863,  passed  a  general  taxing  act  which 
consisted  of  an  eight  per  cent  tax  on  property;  license 
taxes ;  an  income  tax  payable  in  cash ;  and  an  income  tax 
payable  in  kind.  These  taxes  were  to  be  collected  for 
two  years  from  1864. 

The  differentiation  between  salaries  and  other  in- 
come was  quite  extreme,  as  will  be  seen  by  comparing 
the  following  rates.  The  law  provided,— 

That  upon  salaries  of  all  salaried  persons,  serving  in  any 
capacity  whatever,  except  upon  the  salaries  of  persons  serv- 
ing in  the  military  or  naval  service,  there  shall  be  levied  and 
collected  a  tax  of  one  per  centum  on  the  gross  amount  of 


INCOME  TAXATION 

such  salary  when  not  exceeding  $1,500  and  two  per  centum 
upon  any  excess  over  that  amount  to  be  levied  and  collected 
at  the  end  of  each  year  *  *  *  Provided  that  no  tax 
shall  be  imposed  by  virtue  of  this  act  on  the  salary  of  any 
person  receiving  a  salary  not  exceeding  $1,000  per  annum.25 

The  rates  on  net  income  from  other  sources  than  sal- 
aries were: 

Under  $    500 exempt 

Over          500  and  not  exceeding  $1,500 5% 

Over       1,500  and  not  exceeding    3,000 5%  on  first  $1,500 

and  10  per  cent  on  all  excess. 
Over  $  3,000  and  not  exceeding  $  5,000    10     % 
Over      5,000  and  not  exceeding    10.000     12l/2% 
Over     10,000 15     % 

It  would  seem  from  the  wording  of  the  law  that  the 
exemption  of  $500  did  not  apply  to  incomes  above  that 
sum. 

Stock  companies  and  certain  corporations  were  taxed 
ten  per  cent  on  their  profits,  and,  if  such  profits  were  be- 
tween ten  and  twenty  per  cent  of  their  capital  stock  paid 
in,  the  rate  was  12*/2  per  cent,  or,  in  case  the  profits  ex- 
ceeded 20  per  cent  the  rate  was  as  high  as  16  2/3  per  cent. 

Farmers  were  required  to  pay  one-tenth  of  their  pro- 
duce in  kind.  The  law  provided  further  that  they 
should  furnish  the  assessors  a  statement  of  the  number 
of  hogs  slaughtered  and  "deliver  an  equivalent  for  one- 
tenth  of  the  same  in  cured  bacon  at  the  rate  of  60  pounds 
of  bacon  to  the  one  hundred  weight  of  pork."26  This 
provision  was  subsequently  modified  so  as  to  give  an  ex- 
emption of  250  pounds  of  pork.  These  taxes  in  kind, 
which  were  expected  to  procure  large  quantities  of  corn, 
hay,  fodder  and  other  supplies  needed  by  the  army,  were 


25.  Statutes  at  Large  of  the  Confederate     States     of     America, 
First  Congress,  3rd  Session,  Ch.  38,  p.  120,  Section  7. 

26.  Statutes  at  Large  of  the  Confederate  States  of  America,  4th 
Session,  Ch.  66. 


SOUTHERN  CONFEDERACY  2"Jl 

very  unpopular,  especially  in  North  Carolina,  where 
numerous  public  meetings  were  held  to  protest  against 
the  discrimination  which  took  from  the  farmer  so  large 
a  portion  of  his  substance,  while  permitting  others  to 
pay  their  taxes  in  depreciated  currency. 

The  report  of  the  Commissioner  of  Taxes  made  in 
November,  1863,  advocated  a  tax  of  25  per  cent  on  per- 
sons having  large  incomes  so  as  to  "make  it  more  profit- 
able to  invest  their  money  in  Confederate  securities  than 
to  employ  it  in  speculation  or  business."27 

Another  objection  to  the  income  tax  in  general  arose 
from  the  fact  that  the  permanent  Constitution  of  the 
Confederate  States  contained  a  clause  similar  to  that  in 
the  United  States  Constitution,  providing  that  direct 
taxes  should  be  apportioned  among  the  states  according 
to  population,  and  it  \vas  claimed  that  the  income  tax 
was  unconstitutional,  because  not  thus  apportioned. 
President  Davis  recognized  this  difficulty  in  his  message, 
in  December,  1863;  but  argued  that  the  law  could  have 
no  application  until  a  census  had  been  taken,  and  he  did 
not  recommend  the  taking  of  such  a  census  until  the  war 
should  be  ended.28 


27.  "If  necessary,  a  tax  of  twenty-five  per  cent  should  be  laid 
on  incomes  over  $5,000,  and  fifty  per.  cent  on  all  over  $10,000,  and 
fifty  per  cent  on  the  profits  of  all  joint  stock  companies  and  corpora- 
tions, over  and  above  a  dividend  of  twenty-five  per  cent  paid  to  their 
stockholders.     This  may  be  considered  extravagant,  and   capitalists 
may  think   it   oppressive,  but  it  is   neither.     Every  man  should  be 
satisfied  with  a  support  for  himself  and  family,  and  all  he  makes 
above  that  should  be  divided  with  his  country.     No  man  should  de- 
sire to  amass  a  fortune,  or  to  increase  his  fortune,  if  he  already  has 
one,  from  the  hard  necessities  of  a  bleeding  country.     While  three- 
fourths,   perhaps,   of  the  men  of  the   Confederacy,   have   dedicated 
their  lives  or  fortunes,  and  in  many  instances,  both,  to  their  coun- 
try's cause,  the  remaining  fraction  have  no  moral  right  to  amass 
fortunes  at  their  expense."     Confederate  Archives.     Documents  ac- 
companying   Report    of    Secretary    of    the    Treasury.     Report    of 
Thompson  Allan,  Com'r  of  Taxes,  p.  2. 

28.  J.   C.  Schwab.     The  Confederate  States  of  America,  1861- 
1865,  p.  294. 


272  INCOME  TAXATION 

As  to  the  amount  produced  by  the  Confederate  in- 
come tax,  little  is  known  for  the  reason  that  it  was 
blended  with  other  taxes.  The  amount  received  from 
the  "produce  tax"  up  to  the  end  of  1863,  was  officially 
valued  at  five  million  dollars  (Confederate  currency, 
equal  to  about  $350,000  in  specie).  The  conditions  under 
which  the  tax  was  levied  were  so  abnormal  and  the  sta- 
tistics which  have  been  preserved  so  incomplete,  that  it 
would  be  unsafe  to  draw  any  conclusions  from  it  favor- 
able or  otherwise  to  an  income  tax. 


CHAPTER  XIII. 


THE  CORPORATION  TAX  LAW. 

Section  38  of  the  Act  of  Congress  of  August  5,  1909, 
entitled  "An  Act  to  provide  revenue,  equalize  duties  and 
encourage  the  industries  of  the  United  States,  and  for 
other  purposes,"  provided  that  certain  corporations,  joint 
stock  companies  and  insurance  companies  should  be 
"subject  to  pay  annually  a  special  excise  tax  with  re- 
spect to  the  carrying  on  or  doing  business  by  such  cor- 
poration, joint  stock  company  or  association,  or  insur- 
ance company,  equivalent  to  one  per  centum  upon  the  en- 
tire net  income  over  and  above  five  thousand  dollars  re- 
ceived by  it  from  all  sources  during  such  year." 

This  law  is  unique  in  the  annals  of  fiscal  experiments. 
Other  countries  have  taxed  corporations,  but  no  nation, 
so  far  as  I  can  learn,  has  ever  attempted  to  levy  a  similar 
tax  wholly  and  exclusively  on  incorporated  bodies. 

The  history  of  the  law  presents  many  peculiar  feat- 
ures1 and  the  act  itself  exhibits  some  curious  anomalies. 


1.  "Its  coming  into  being  is  one  of  the  most  remarkable  of  re- 
cent legislative  events.  It  was  not  discussed  during  the  campaign ; 
it  was  not  mentioned  in  President  Taft's  inaugural ;  it  was  not  pro- 
posed in  the  compact  and  deliberate  program  laid  down  by  the 
President  in  his  message  at  the  opening  of  the  special  session,  nor 
was  it  brought  forward  as  any  part  of  the  pending  revenue  measure 
by  any  member  of  Congress."  Review  of  Reviews,  Vol.  40,  p.  136. 
(Aug.  1,  1910.) 


274  INCOME  TAXATION 

For  example,  it  might  be  supposed  that  a  fiscal  meas- 
ure of  such  importance  would  not  be  adopted  without  a 
great  amount  of  preliminary  study  and  discussion;  but, 
as  a  matter  of  fact,  the  law  was  passed  hastily  and  with 
but  little  debate  in  the  closing  hours  of  a  long  and  weari- 
some session. 

It  was  not  an  independent  measure,  but  was  one  of 
the  last  of  the  numerous  amendments  tacked  on  to  the 
very  voluminous  tariff  Act.  It  is  true  that  Attorney 
General  Wickersham,  who  is  credited  with  having  drawn 
the  bill,  is  noted  for  his  great  ability  and  legal  attain- 
ments; but  it  can  hardly  be  claimed  that  he  was  an  ex- 
pert in  matters  of  fiscal  legislation. 

Again,  it  might  be  supposed  that  being  a  revenue 
measure  it  would  necessarily  originate  in  the  House  of 
Representatives;2  but,  so  far  from  that  being  the  case,  it 
not  only  did  not  originate  in  the  House,  but  never  was 
before  the  House  for  consideration,  discussion  or  vote.3 

It  might  be  thought  that  an  Act  which  by  its  title  pro- 
poses to  "encourage  the  industries  of  the  United  States" 
would  not  single  out  industrial  corporations  for  special 
taxation.  Such  a  method  of  encouragement,  as  Mr. 
Machen  grimly  suggested,  "would  be  that  of  the  French 
captain  who  hanged  a  number  of  his  men  from  the  yard- 
arms  'pour  encourager  les  autres!'  "* 


2.  "All  bills  for  raising  revenue  shall  originate  in  the  House 
of  Representatives ;   but   the    Senate   may  propose    or   concur  with 
amendments  as  on  other  bills."     Constitution  of  the  United  States, 
Section  7,  Article  I. 

3.  It  should  be   stated,  however,  that  a  draft  of  the  bill  was 
handed  to  Representative  Longworth  by  the  President,  some  months 
previous  to  its  passage,   for   submission   to   the  Ways   and    Means 
Committee  of  the  House,  but  no  action  was  taken  upon  it  by  the 
Committee.     See   speech  of  Hon.  Nicholas  Longworth   at  Chicago. 

4.  Machen.    A  Treatise  on  the  Federal  Corporation  Tax  Law 
of  1909,  p.  5. 


THE  CORPORATION  TAX  LAW  275 

It  might  be  supposed  that  a  tax,  the  amount  of  which 
is  determinable  wholly  by  reference  to  net  income  would 
be  recognized  as  at  least  a  partial  income  tax.  But  it  is 
precisely  the  friends  of  the  law  who  are  most  strenuous 
in  claiming  that  it  is  not  an  income  tax,  and  we  are  met 
by  a  bewildering  diversity  of  opinion  as  to  whether  it  is 
a  tax,  or  an  excise,  or  an  "excise  tax"  and  as  to  whether 
it  is  levied  on  property,  franchises,  privileges,  business 
or  income. 

In  order  to  understand  the  genesis  of  the  corporation 
tax  law  it  is  necessary  to  go  back  to  the  proposed  "war 
tax"  of  1898.  This  was  a  bill  to  tax  the  franchises  of 
corporations  on  the  basis  of  their  gross  earnings,  or  re- 
ceipts and,  like  other  Federal  income  tax  laws,  it  eman- 
ated from  the  Senate  Finance  Committee  as  an  amend- 
ment to  the  revenue  act.  It  met  with  much  opposition 
and  finally,  in  lieu  of  it.  a  law  was  passed  which  was  evi- 
dently aimed  at  the  so-called  "Sugar  Trust"  and  Stand- 
ard Oil  Trust." 

Section  27  of  this  law  reads  as  follows : 

That  every  person,  firm,  corporation  or  company,  carry- 
ing on  or  doing  the  business  of  refining  petroleum,  or  re- 
fining sugar  or  owning  or  controlling  any  pipe  line  for  trans- 
porting oil  or  other  products,  whose  gross  annual  receipts 
exceed  two  hundred  and  fifty  thousand  dollars,  shall  be 
subject  to  pay  annually,  a  special  excise  tax  equivalent  to 
one-quarter  of  one  per  centum  on  the  gross  amount  of  all 
receipts  of  such  persons,  firms,  corporations,  and  companies 
in  their  respective  business  in  excess  of  said  sum  of  two 
hundred  and  fifty  thousand  dollars. 

The  law  was  assailed  as  unconstitutional  and  as  in 
conflict  with  the  principles  enunciated  in  the  Pollock  case. 
The  question  was  submitted  to  the  Supreme  Court  of  the 
United  States  in  the  case  of  Spreckels  Sugar  Refining 


276  INCOME  TAXATION 

Company  vs.  McClain,  192  U.  S.  397,  and  the  tax  was 
sustained.  In  its  decision  the  Court  used  the  following 
language : 

The  tax  is  defined  in  the  Act  as  "a  special  excise  tax,"5 
and,  therefore,  it  must  be  assumed,  for  what  it  is  worth, 
that  Congress  had  no  purpose  to  exceed  its  powers  under 
the  Constitution,6  but  only  to  exercise  the  authority  granted 
to  it  of  laying  and  collecting  excises.  [The  Court  then  cited 
and  commented  upon  Pacific  Insurance  Company  vs.  Soule, 
7  Wallace,  433,  and  other  cases.]  In  view  of  these  and 
other  decided  cases,  we  cannot  hold  that  the  tax  imposed  on 
the  plaintiff  expressly  with  reference  to  "its  carrying  on  or 
doing  the  business  of  *  *  *  refining  sugar,"  and  which 
was  to  be  measured  by  its  gross  annual  receipts  in  excess  of 
a  named  sum,  is  other  than  is  described  in  the  Act  of  Con- 
gress, a  special  excise  tax,  and  not  a  direct  one  to  be  ap- 
portioned among  the  States  according  to  their  respective 
numbers.  This  conclusion  is  inevitable  from  the  judgments 
in  prior  cases,  in  which  the  court  has  dealt  with  the  dis- 
tinction, often  very  difficult  to  be  expressed  in  words,  be- 
tween taxes  that  are  direct  and  those  which  are  to  be  re- 
garded simply  as  excises. 

The  decision  was  very  important,  not  only  in  that  it 
was  construed  by  many  as  indicating  a  retreat  from  the 
ground  taken  by  the  Court  in  the  Pollock  case,  but  also 
as  seeming  to  point  out  a  method  by  which  the  alleged 
constitutional  restrictions  on  direct  taxes  could  be 
evaded.  It  will  be  noticed  that  the  corporation  tax  law 
of  1909,  is  drawn  with  special  reference  to  bringing  it 
within  the  protecting  aegis  of  that  decision. 


6.  As  the  whole  question  hinges  upon  whether  the  law  author- 
izes a  tax  or  excise  the  term  "excise  tax"  seems  incongruous. 

6.  Compare  the  opinion  in  the  Pollock  case,  where  it  is  said  that 
"the  name  of  the  tax  is  unimportant ;"  that  "it  is  the  substance  and 
not  the  form  which  controls ;"  and  that  the  limitations  of  he  Con- 
stitution cannot  be  "frittered  away"  by  calling  a  tax  indirect  when 
it  is,  in  fact,  direct.  Pollock  v.  Farmers'  Loan  and  Trust  Com- 
pany, 157  U.  S.  pp.  580,  581  and  583. 


THE  CORPORATION  TAX  LAW  277 

The  Republican  National  Convention,  held  in  Chi- 
cago, June  18,  1908,  made  no  mention  of  the  income  tax 
in  its  platform;  but  the  Democratic  Convention  at  Den- 
ver in  July,  1908,  adopted  the  following  "plank:" 

We  favor  an  income  tax  as  part  of  our  revenue  system 
and  we  urge  the  submission  of  a  constitutional  amendment 
specifically  authorizing  Congress  to  levy  and  collect  a  tax 
upon  individual  and  corporate  incomes  to  the  end  that  wealth 
may  bear  its  proportionate  share  of  the  burdens  of  the 
Federal  Government. 

The  Socialist  convention  in  May  had  also  declared  in 
favor  of  a  graduated  income  tax.  President  Roosevelt 
had  said  in  his  message  of  December  4,  1906 : 

The  graduated  income  tax  of  the  proper  type  would  be 
a  desirable  feature  of  federal  taxation  and  it  is  to  be  hoped 
that  one  may  be  devised  which  the  Supreme  Court  will  de- 
clare constitutional. 

In  his  speech  of  acceptance  at  Cincinnati,  July  28, 
1908,  President  Taft  expressed  the  same  idea  as  follows : 

The  Democratic  platform  demands  two  constitutional 
amendments,  one  providing  for  an  income  tax  and  the  other 
for  an  election  of  Senators  by  the  people.  In  my  judgment 
an  amendment  to  the  Constitution  for  an  income  tax  is  not 
necessary.  I  believe  that  an  income  tax,  when  the  protective 
system  of  customs  shall  not  furnish  income  enough  for 
governmental  needs,  can  and  should  be  devised  which,  un- 
der the  decisions  of  the  Supreme  Court  will  conform  to  the 
Constitution. 

In  his  inaugural  address  however  President  Taft 
made  the  following  recommendation: 

Should  it  be  impossible  to  do  so  [secure  sufficient  reve- 
nue] from  import  duties,  new  kinds  of  taxation  must  be 
adopted  and,  among  these,  I  recommend  a  graduated  in- 
heritance tax  as  correct  in  principle  and  as  certain  and  easy 
of  collection. 

It  was  in  accordance  with  this  recommendation  that 
the  Ways  and  Means  Committee  reported  an  inheritance 


278  INCOME  TAXATION 

tax  law  as  part  of  the  Payne  Tariff  Bill,  and  this  was 
subsequently  passed  by  the  House  and  sent  to  the  Senate 
for  concurrence. 

On  June  16,  1909,  President  Taft  transmitted  a 
special  message  to  Congress,  from  which  the  following  is 
an  extract  :7 

I  recommended  a  graduated  inheritance  tax  as  correct 
in  principle  and  as  certain  and  easy  of  collection.  The  House 
of  Representatives  has  adopted  the  suggestion  and  has  pro- 
vided in  the  bill  it  passed  for  the  collection  of  such  a  tax. 
In  the  Senate  the  action  of  its  finance  committee  and  the 
course  of  the  debate  indicate  that  it  may  not  agree  to  this 
provision  and  it  is  now  proposed  to  make  up  the  deficit  by 
the  imposition  of  a  general  income  tax  in  form  and  sub- 
stance of  almost  exactly  the  same  character  as  that  which, 
in  the  case  of  Pollock  vs.  the  Farmers  Loan  and  Trust  Com- 
pany (157  U.  S.  429),  was  held  by  the  Supreme  Court  to 
be  a  direct  tax  and  therefore  not  within  the  power  of  the 
general  Government  to  impose  unless  apportioned  among 
the  States  according  to  their  population. 

The  decision  in  the  Pollock  case  left  power  in  the  Na- 
tional Government  to  levy  an  excise  tax  which  accomplishes 
the  same  purpose,  as  a  corporation  income  tax,  but  is  free 
from  certain  objections  urged  to  the  proposed  income  tax 
measure.  I,  therefore,  recommend  an  amendment  to  the 
tariff  bill  imposing  upon  all  corporations  and  joint  stock 
companies  for  profit,  except  National  banks  (otherwise 
taxed)  savings  banks  and  building  and  loan  associations,  an 
excise  tax  measured  by  two  per  cent,  on  the  net  income  of 
such  corporations.  This  is  an  excise  tax  upon  the  privilege 
of  doing  business  as  an  artificial  entity  and  of  freedom  from 
a  general  partnership  liability  enjoyed  by  those  who  own 
the  stock. 

The  message  also  cites  the  Spreckles  case  as  justify- 
ing the  imposition  of  such  an  "excise  tax." 

At  the  request  of  the  President,  Attorney  General 
Wickersham  prepared  a  bill  and,  in  accordance  with  the 


7.    Congressional  Record,  Vol.  44,  Pt.  Ill,  p.  3344. 


THE  CORPORATION  TAX  LAW  279 

suggestion  contained  in  the  message,  the  Senate  sub- 
stituted the  law  thus  prepared,  for  the  inheritance  tax. 
The  bill  was  sent  into  conference,  and  was  eventually 
passed  by  the  Senate  August  5,  1909,  as  a  part  of  the 
general  tariff  act.  There  were  no  important  amendments 
except  that  the  rate  was  reduced  to  one  per  cent. 

Early  in  the  history  of  the  Payne  Tariff  Bill,8  Senator 
Bailey  of  Texas,  introduced  an  amendment  which  pro- 
vided for  a  general  income  tax.  This  amendment  fol- 
lowed very  closely  the  Income  Tax  Law  of  1894,  except 
that  it  provided  for  a  fixed  rate  of  3  per  cent  on  all  in- 
comes in  excess  of  $5,000,  and  contained  special  pro- 
visions for  a  corporation  tax,  an  inheritance  tax  and  a  tax 
on  gifts,  devises,  and  bequests. 

At  the  same  time  Senator  Cummins  of  Iowa,  pre- 
sented an  amendment  proposing  a  graduated  tax  upon  all 
incomes  over  $5,000  a  year.  The  scale  of  rates  proposed 
by  him  was  as  follows : 

On  incomes  not  exceeding  $  10,000 2     % 

20,000 2l/2% 

40,000 3     % 

60,000 y/2% 

80,000 4     % 

100,000 5     % 

of  more  than         100,000 6     % 

These  two  amendments  were  eventually  consolidated,9 
mainly  in  the  form  of  the  Bailey  bill,  and  strenuous 
efforts  were  made  to  secure  the  adoption  of  the  "Bailey- 
Cummins  amendment,"  before  proceeding  to  revise  the 
tariff.  It  was  argued  that,  if  there  was  a  prospect  of 
raising  $150,000,000  or  $200,000,000  by  a  tax  on  in- 


8.  April  21,  1909. 

9.  See  Amendment  to  H.  R.  1438  proposed  by  Senator  Bailey 
June  11,  1909. 


28O  INCOME  TAXATION 

come,  much  larger  reductions  could  be  made  in  the  tariff 
schedules.  The  Republican  leaders  however  took  alarm 
at  this  plan  as  involving  a  menace  to  the  whole  protective 
system,  and  succeeded  in  postponing  action  on  the  income 
tax  amendments  until  the  revision  of  the  tariff  should  be 
completed  and  the  amount  of  the  resulting  deficit  definite- 
ly known. 

The  position  taken  by  the  administration  forces 
of  the  Senate  is  shown  by  the  following  colloquy,  which 
occurred  June  29,  1909,  between  Senator  Clay  of  Georgia 
and  Senator  Aldrich  of  Rhode  Island. 

Mr.  Clay:  I  want  to  ask  the  Senator  a  question.  If 
we  are  to  raise  $50,000,000  per  year  by  a  tax  on  corporation 
dividends  does  the  Senator  think  that  such  a  tax  is  a  vicious 
assault  upon  the  protective  system;  and,  second,  if  this  bill 
as  it  stands  will  produce  enough  revenue  to  support  the 
government  and  we  adopt  the  corporation  tax  raising 
$50,000,000,  does  not  the  Senator  think  we  ought  to  take  up 
some  of  the  other  schedules  and  reduce  the  duty  in  propor- 
tion to  the  amount  that  we  raise  by  the  corporation  tax  ? 

Mr.  Aldrich :  Does  the  Senator  from  Georgia  want  an 
answer? 

Air.  Clay :  I  would  not  have  asked  the  question  if  I  did 
not. 

Mr.  Aldrich :  I  shall  vote  for  the  corporation  tax  as  a 
means  to  defeat  the  income  tax. 

Mr.  Clay :    I  think  that  is  an  honest  statement. 

Mr.  Aldrich :  I  will  be  perfectly  frank  with  the  Senate 
in  that  respect.  I  shall  vote  for  it  for  another  reason.  The 
statement  which  I  made  shows  a  deficit  for  this  year  and 
for  next  year.  This  year  I  estimated  $69,000,000.  It  will 
be  $60,000,000.  And  next  year  I  estimate  a  deficit  of 
$45,000,000.  I  am  willing  that  that  deficit  shall  be  taken 
care  of  by  a  corporation  tax.  That  corporation  tax,  how- 
ever, at  the  end  of  two  years,  if  my  estimate  should  be  cor- 
rect, should  be  reduced  to  a  nominal  amount  or  repealed. 
It  can  be  reduced  to  a  nominal  amount  and  the  feature  of 
the  corporation  tax  that  commends  it  to  many  Senators  and 


THE  CORPORATION  TAX  LAW  28 1 

a  great  many  other  people  is  that  the  corporation  tax,  if  it 
is  adopted,  will  certainly  be  very  largely  reduced,  if  not  re- 
pealed at  the  end  of  two  years. 

So  I  am  willing  to  accept  a  proposition  of  this  kind  for 
the  purpose  of  avoiding  what  to  my  mind  is  a  great  evil  and 
the  imposition  of  a  tax  in  time  of  peace  when  there  is  no 
emergency  a  tax  which  is  sure  in  the  end  to  destroy  the  pro- 
tective system.10 

A  different  view  as  to  the  probable  permanency  of 
the  law  was  entertained  by  Senator  Flint  of  California, 
who  said : 

If  the  amendment  is  adopted  by  Congress  it  will  remain 
permanently  on  the  statute  books  until  such  time  as  the  peo- 
ple of  this  country,  through  their  legislatures,  shall  ratify 
the  constitutional  amendment  and  then  there  will  be  added 
to  it  an  income  tax. 

Senator  Root  of  New  York,  in  his  speech  advocating 
the  passage  of  the  corporation  tax  amendment,  expressed 
himself  as  follows : 

Gentlemen  may  say  I  am  for  the  corporation  tax  to  beat 
the  income  tax.  I  care  not.  I  am  for  the  corporation  tax 
because  I  think  it  is  better  policy,  better  patriotism,  higher 
wisdom  than  the  general  income  tax  at  this  time  and  under 
these  circumstances.  I  wish  to  beat  the  income  tax  pro- 
vision, because  I  think  it  is  unwise  and  I  wish  to  pass  the 
corporation  tax  provision  because  I  think  it  is  wise. 

These  extracts  will  perhaps  suffice  to  show  that  the 
corporation  tax  was  not  proposed  and  passed  as  an  im- 
portant and  desirable  addition  to  our  fiscal  system;  nor 
was  any  attempt  made  to  justify  it  from  an  economic  or 
scientific  standpoint.  The  avowed  purpose  of  its  advo- 
cates was  to  defeat  the  general  income  tax  and  incidental- 
ly to  raise  money  to  meet  a  temporary  deficiency.  This 
was  fully  understood  by  the  Democrats,  but  they  were 
in  a  position  where  they  could  not  oppose  the  bill  without 


10.    Congressional  Record,  Vol.  44,  Part  III    (June  29,  1909), 
p.  3929. 


282  INCOME  TAXATION 

seeming  to  favor  the  corporations  and  to  be  acting  in  op- 
position to  an  income  tax  law.  When  the  vote  was  taken 
on  Senator  Bailey's  motion  to  substitute  the  income  tax 
amendment  for  the  Corporation  Tax  Law  there  were 
28  yeas  and  47  nays — 17  not  voting.  There  were  only 
five  Republicans,  namely,  Senators  Borah,  Bristow, 
Clapp,  Cummins  and  La  Follette  who  voted  for  the  in- 
come tax  and  no  Democrats  who  voted  against  it.11 

As  was  to  be  expected,  the  question  of  the  constitu- 
tionality of  the  law  was  soon  brought  before  the  courts. 
The  first  of  fifteen  cases  which  reached  the  Supreme 
Court  of  the  United  States  was  that  of  Stella  P.  Flint, 
as  General  Guardian,  etc.,  vs.  Stone  Tracy  Company, 
et  al.  It  arose  in  Windsor,  Vermont,  and  was  well  cal- 
culated to  bring  out  clearly  the  unequal  operation  of  the 
law. 

A  firm  known  as  Tuxbury  and  Stone,  after  having 
carried  on  a  prosperous  mercantile  business  for  twenty- 
nine  years,  dissolved  and  two  new  firms  were  formed. 
One  of  these  firms  was  Stone,  Tracy  &  Company,  which 
carried  on  the  old  business,  and  which  was  formed  into 
a  corporation  in  1900.  The  other  firm  was  Tuxbury  & 
Sons,  who  constructed  a  building  and  established  a  busi- 
ness adjoining  the  original  store,  but  did  not  incorporate. 
As  the  two  firms  carried  the  same  lines  of  goods,  had 
about  equal  capital  and  were  side  by  side,  the  competition 
was  very  keen.  It  was  claimed  that  the  firm  which  had 
incorporated  was  placed  at  a  great  disadvantage  as  com- 
pared with  its  rival,  not  only  in  being  compelled  to  pay 


11 .    Congressional   Record,  Vol.   44,   Part  III    (July  7,    1909), 
p.  4348. 


THE  CORPORATION  TAX  LAW  283 

a  tax  from  which  the  other  was  exempt,  but  also  in  be- 
ing compelled  to  make  disclosure  of  its  indebtedness  and 
general  financial  condition. 

The  other  cases  which  were  brought  to  test  the  law 
may  be  divided  into  four  groups :  Insurance  companies ; 
public  service  corporations;  real  estate  companies  and 
miscellaneous  companies,  such  as  The  Northern  Trust 
Company  (Chicago),  The  Corn  Exchange  National 
Bank,  The  American  Multigraph  Company,  The  Baltic 
Mining  Company  and  The  Motor  Taximeter  Cab  Com- 
pany. 

All  of  the  above  mentioned  companies  were  corpora- 
tions "organized  for  profit,"  and  the  fifteen  cases  were 
argued  together  on  March  2,  1910.  The  companies  were 
represented  by  able  counsel  and  the  various  points  which 
were  raised  in  their  briefs  are  perhaps  sufficiently  in- 
dicated by  the  following  summary  of  the  contentions  in 
the  reply  brief  of  Attorney  General  Wickersham  and 
Solicitor  General  Bowers : 

First.  The  tax  is  not  a  direct  tax  upon  the  property, 
real  or  personal,  of  the  corporations,  joint  stock  companies 
or  associations,  or  insurance  companies  which  are  required 
to  pay  the  tax.  On  the  contrary,  the  tax  is  an  excise,  as  the 
statute  expressly  declares,  upon  "the  carrying  on  or  doing 
business"  by  such  companies ;  and  it  therefore  needs  no  ap- 
portionment among  the  states  according  to  population  under 
Section  2  of  Article  I  or  clause  4  of  Section  9  of  Article  I 
of  the  Constitution  of  the  United  States. 

Second.  The  tax  is  not  a  direct  tax  upon  shares  of  the 
stockholders  in  the  companies  to  the  business  of  which  the 
tax  attaches,  or  upon  the  income  of  such  stockholders  from 
their  shares. 

Third.  The  tax  does  not  become  direct  in  the  special 
case  of  a  company  engaged  mainly,  or  even  solely,  in  the 
business  of  handling  or  dealing  in  real  estate. 


284  INCOME  TAXATION 

Fourth.  The  tax  is  not  an  infraction  of  the  general 
power  of  the  states  to  authorize  the  formation  of  corpora- 
tions and  joint  stock  companies. 

Fifth.  The  business  of  public  service  companies  is  not 
intrinsically  an  operation  of  the  state  which  created  the  com- 
pany. Further,  the  United  States  may  tax  even  a  business 
conducted  for  or  by  a  state  itself. 

Sixth.  The  tax  is  not  imposed  upon  state  or  municipal 
bonds,  or  upon  the  income  of  such  bonds,  forming  part  of 
the  business  assets  of  the  company  whose  business  is  taxed ; 
and  the  company's  income  from  such  bonds  is  to  be  included 
in  the  computation  of  its  net  income. 

Seventh.  As  an  excise,  the  tax  is  uniform,  though  it  is 
laid  upon  other  kinds  of  business  than  insurance  only  when 
the  business  is  conducted  by  a  corporation  or  joint  stock 
company  having  shares  of  stock ;  and  the  imposition  of  the 
tax  upon  the  business  of  such  corporations  and  joint  stock 
companies,  while  the  kindred  business  of  individuals  and 
partnerships  is  not  taxed,  does  not  take  property  without 
due  process  of  law  in  violation  of  the  Fifth  Amendment  to 
the  Constitution. 

Eighth.  None  of  the  special  rules  prescribed  by  the 
taxing  statute  produces  any  lack  of  necessary  uniformity. 

Ninth.  The  company  required  to  pay  the  tax  is  not 
subjected  to  any  unreasonable  search  or  seizure,  or  im- 
properly required  to  incriminate  itself,  by  any  of  the  ad- 
ministrative provisions  of  the  statute. 

Tenth.  The  tax  may  properly  be  collected  in  1910, 
though  it  is  measured  by  the  net  income  of  the  tax-paying 
company  during  the  calendar  year  1909,  of  which  seven 
months  had  already  passed  when,  on  August  5,  1909,  the 
taxing  statute  was  enacted. 

Eleventh.  If  in  any  part  or  application  this  taxing 
statute  is  unconstitutional,  it  should  be  sustained  neverthe- 
less in  all  its  other  parts  and  applications. 

The  most  important  point  is,  of  course,  the  first.  If 
the  tax  is  levied  on  property  it  is  direct  and  therefore 
prohibited  unless  apportioned  according  to  population. 
It  was  contended  by  the  appellants  that  the  tax  was  prac- 


THE  CORPORATION  TAX  LAW  285 

tically  levied  on  the  franchise.  It  is  elementary  that 
franchises  are  property12  and  Justice  Field  had  defined 
"corporate  franchise  or  business"  as  "the  right  or  privi- 
lege given  by  the  State  to  two  or  more  persons  of  being 
a  corporation,  that  is,  of  doing  business  in  a  corporate 
capacity."13  President  Taft  had  described  the  tax  in  his 
message  as  "an  excise  tax  upon  the  privilege  of  doing 
business  as  an  artificial  entity"  and  Senator  Root  had 
admitted  that  the  words  of  the  law,  "a  special  excise  tax 
with  respect  to  the  carrying  on  or  doing  business"  were 
equivalent  to  a  tax  on  the  right  or  privilege  to  transact 
business.14  It  will  be  seen  that  these  were  rather  danger- 
ous admissions  and  the  Attorney  General,  in  his  brief, 
avoids  the  word  "privilege"  and  claims  that  the  tax  is 
levied  on  "  the  transaction  or  conduct  of  business."  He 
draws  a  rather  fine  distinction  between  franchises  as 
privileges  and  franchises  as  property  and  argues  that  it 
is  only  the  transacting  of  business  or,  at  most  the  right 
of  transacting  business,  which  is  taxed.  In  other  words 
he  claimed  that  the  right  to  do  and  not  the  right  to  be 
was  taxed  although  of  course  the  right  to  be  without  the 
right  to  do  would  be  of  little  value. 

As  the  corporation  taxes  or,  as  they  are  called  in  the 
Act,  "Assessments,"  were  payable  on  or  before  the 
thirtieth  day  of  June,  it  was  expected  that  an  early  de- 
cision of  the  fifteen  cases  would  be  reached;  but,  on  the 
last  day  of  the  term,  May  31,  1910,  Chief  Justice  Fuller 
made  the  announcement  that  the  cases  would  be  restored 
to  the  docket  "for  argument  before  a  full  bench."  It 
was  thought  by  many  that  this  action  indicated  a  three  to 
four  division  among  the  judges  upon  the  question  of  the 
validity  of  the  law.  The  re-argument  will  probably  take 


12.  Cooley  on  Taxation,  3d  Ed.  p.  686. 

13.  Home  Insurance  Company  v.  New  York,  134  U.  S.  594. 

14.  Congressional  Record,  Vol.  44,  p.  4088. 


286  INCOME  TAXATION 

place  in  November  or  December,  1910,  and  it  is  of  course 
impossible  to  predict  the  result.  Only  two  of  the  judges 
who  participated  in  the  decision  of  the  Pollock  case — 
Judges  Harlan  and  White — remain,  and  the  new  judges 
may  look  at  the  question  involved  from  quite  a  different 
standpoint. 

In  the  meantime  no  effort  has  been  made  to  enforce 
the  "publicity  clause,"  which  was  considered  a  very  im- 
portant feature  of  the  bill  at  the  time  it  was  passed.  There 
is  probably  a  strong  feeling  in  administration  circles  that 
it  would  be  injudicious  to  carry  out  the  provisions  of  the 
law  literally  in  this  respect  until  the  Supreme  Court  has 
passed  upon  the  constitutionality  of  the  measure. 

The  exact  amount  raised  by  the  corporation  tax  has 
not  been  made  public.  From  a  statement  of  the  Treasury 
Department,  May  10,  1910,  it  appears  that  the  sum  of 
$25,962,462.28  was  levied  and  assessed  in  37  states  and 
Hawaii  in  the  months  of  January,  February  and  March. 
The  eleven  states  which  had  not  reported  were  Delaware, 
Idaho,  Maine,  Mississippi,  Nevada,  Rhode  Island,  Utah, 
Vermont,  Wyoming,  Arizona  and  Oklahoma.  It  seems 
probable  that  the  receipts  from  these  states  will  bring  the 
total  yield  of  the  tax  up  to  twenty-seven  millions.  The 
number  of  returns  was  231,243  and  the  amount  collected 
for  penalties  about  $100,000.  New  York  contributed 
about  one-fifth  of  the  whole  amount  and  more  than 
double  the  amount  paid  by  all  the  southern  states. 
Pennsylvania  was  second  and  the  four  states  of  New 
York,  Pennsylvania,  Illinois  and  Ohio  paid  about  one- 
half  of  the  tax.15  The  yield  of  the  tax  has  corresponded 
very  closely  to  the  estimates  which  were  made  before  it 
went  into  operation. 


15.  In  Appendix  F  will  he  found  a  statement  of  the  assess- 
ments for  the  corporation  tax  for  three  months.  This  statement  is 
condensed  from  a  tabulation  by  districts  furnished  the  writer  by 
the  Treasury  Department. 


CHAPTER  XIV. 


THE  PROPOSED  SIXTEENTH  AMENDMENT 
TO  THE  CONSTITUTION. 

Every  amendment  to  the  Constitution  of  the  United 
States  marks  an  important  step  in  the  political  history  of 
the  Republic,  and  the  proposed  Sixteenth  Amendment 
which  is  designed  to  enlarge,  or  at  least  define,  the  power 
of  the  Federal  Government  to  tax  incomes,  is  no  ex- 
ception. 

The  adoption  of  this  amendment  will  not  only  operate 
to  strengthen  the  central  Government  in  time  of  war  or 
other  emergencies,  but  it  may  also  mark  the  beginning 
of  a  new  fiscal  policy — a  policy  of  gradual  reduction  of 
tariff  made  possible  by  resorting  to  income  taxation.  The 
amendment  was  proposed  with  but  little  debate  or  public 
discussion,  and  it  is  safe  to  say  that  many  people  did  not 
understand  its  full  significance.  Under  these  circum- 
stances it  has  seemed  proper  to  give  a  brief  review  of  the 
events  which  led  to  its  proposal.  Article  V  of  the  Con- 
stitution of  the  United  States  provides  that 

The  Congress,  whenever  two-thirds  of  both  Houses 
shall  deem  it  necessary,  shall  propose  amendments  to  this 
Constitution,  or,  on  the  application  of  the  legislatures  of 
two-thirds  of  the  several  States  shall  call  a  convention  for 
proposing  amendments  which  in  either  case  shall  be  valid 
to  all  intents  and  purposes  as  part  of  this  Constitution  when 
ratified  by  the  legislatures  of  three-fourths  of  the  several 


288  INCOME  TAXATION 

States,  or  by  conventions  in  three-fourths  thereof,  as  the 
one  or  the  other  mode  of  ratification  may  be  proposed  by 
the  Congress. 

When  it  became  apparent,  by  the  decision  of  the  Su- 
preme Court  in  the  Pollock  case,  that  a  Federal  income 
tax  could  not  be  constitutionally  levied  except  upon  the 
basis  of  apportionment  according  to  population,  and  that 
the  powers  of  the  National  Government  in  respect  to  in- 
come tax  had  become  involved  in  so  much  doubt  and  un- 
certainty that  the  ablest  lawyers  and  judges  were  unable 
to  agree  regarding  them,  there  was  a  general  feeling  that 
the  situation  was  intolerable  and  could  only  be  relieved 
by  a  clear  and  authoritative  definition  of  the  powers  of 
the  Federal  Government  in  regard  to  direct  taxation. 

As  has  been  shown  in  the  previous  chapter,  the 
Democratic  platform  of  1008,  urged  the  submission  of 
a  constitutional  amendment  "specifically  authorizing  Con- 
gress to  levy  and  collect  taxes  upon  individual  and  cor- 
porate incomes." 

President  Taft,  in  his  speech  of  acceptance  of  July 
28,  1908,  called  attention  to  this  plank  of  the  Democratic 
'platform  and  said :  "In  my  judgment  an  amendment  to 
the  Constitution  for  an  income  tax  is  not  necessary."  But 
after  his  inauguration  his  views  upon  this  point  under- 
went some  change,  as  is  shown  by  the  following  extracts 
from  his  special  message  of  June  16,  1909 : 

Although  I  have  not  considered  a  constitutional  amend- 
ment as  necessary  to  the  exercise  of  certain  phases  of  this 
power  [to  tax  incomes]  a  mature  consideration  has  satisfied 
me  that  an  amendment  is  the  only  proper  course  for  its 
establishment  to  its  full  extent.  I  therefore  recommend 
that  both  Houses,  by  a  two-thirds  vote,  shall  propose  an 
amendment  to  the  Constitution  conferring  the  power  to  levy 
an  income  tax,  upon  the  National  Government  without  an 
apportionment  among  the  States  in  proportion  to  popula- 


THE  SIXTEENTH  AMENDMENT  289 

tion  *  *  *  It  is  said  that  the  difficulty  and  delay  in  secur- 
ing the  approval  of  three-fourths  of  the  States  will  destroy 
the  chance  of  adopting  the  amendment.  Of  course,  no  one 
can  speak  with  certainty  upon  this  point,  but  I  have  become 
convinced  that  a  great  majority  of  the  people  of  this  country 
are  in  favor  of  vesting  this  National  Government  with 
power  to  levy  an  income  tax  and  that  they  will  secure  the 
adoption  of  the  amendment  in  the  States  if  proposed  to  them. 

Prior  to  this  date  however  on  April  28,  1909,  Senator 
Norris  Brown  (Republican)  of  Nebraska,  had  intro- 
duced Senate  Joint  Resolution  No.  39,  which  read  as 
follows : 

Resolved  by  the  Senate  and  House  of  Represenatives  of 
the  United  States  of  America  in  Congress  assembled  (two- 
thirds  of  both  Houses  concurring),  that  the  following  sec- 
tion be  submitted  to  the  legislatures  of  the  several  States, 
which,  when  ratified  by  the  legislatures  of  three-fourths  of 
the  States,  shall  be  valid  and  binding  as  a  part  of  the  Con- 
stitution of  the  United  States  : 

The  Congress  shall  have  power  to  lay  and  collect  taxes 
on  incomes  and  inheritances,  from  whatever  source  derived, 
without  apportionment  among  the  States  and  without  re- 
gard to  any  census  or  enumeration. 

This  resolution  was  subsequently  withdrawn  and  re- 
introduced,  with  the  proposed  amendment  in  the  follow- 
ing form : 

The  Congress  shall  have  power  to  lay  and  collect  direct 
taxes  on  incomes  without  apportionment  among  the  several 
States  according  to  population. 

It  will  be  noticed  that  the  reference  to  inheritances, 
together  with  the  clauses,  "from  whatever  source  de- 
rived" and  "without  regard  to  any  census  or  enumera- 
tion," were  stricken  out  and  the  word  "direct"  inserted 
before  "taxes."  In  this  form  the  resolution  was  read 
the  first  and  second  times  and  referred  to  the  Senate 
Committee  on  Finance.  When  it  emerged  from  this 


29O  INCOME  TAXATION 

committee  and  was  finally  concurred  in  by  both  Houses, 
after  but  little  debate,1  it  had  been  changed  to  read  as 
follows : 

Article  XVI.  The  Congress  shall  have  power  to  lay 
and  collect  taxes  on  income,  from  whatever  source  derived, 
without  apportionment  among  the  several  states  and  with- 
out regard  to  any  census  or  enumeration. 

It  was  unfortunate  that  the  phrase  "from  whatever 
source  derived"  was  restored,  as  the  amendment  would 
have  been  equally  effective  without  it,  and  the  four  words 
in  question  have  raised  a  storm  of  objection  from  those 
who  construe  them  as  an  express  permission  to  the 
Federal  Government  to  tax  state  securities  and  as,  there- 
fore, constituting  a  menace  to  state  rights.  It  is  true 
that  these  words,  or  their  equivalent,  appeared  repeatedly 
in  each  of  the  Civil  War  Income  Tax  Laws,  the  Income 
Tax  Law  of  1894,  and  the  present  Corporation  Tax  Law ; 
but  the  sinister  possibilities  which  were  thought  to  lurk 
behind  the  words  "from  whatever  source  derived"  were 
not  suspected  until  quite  recently. 

In  transmitting  the  proposed  amendment  to  the  legis- 
lature of  New  York,  January  5,  1910,  Governor  Hughes 
sent  a  special  message  in  which  he  said : 

I  am  in  favor  of  conferring  upon  the  Federal  Govern- 
ment the  power  to  lay  and  collect  an  income  tax  without  ap- 
portionment among  the  States  according  to  population.  I 
believe  that  this  power  should  be  held  by  the  Federal 
Government  so  as  to  properly  equip  it  with  the  means  of 


1.  Joint  Resolution  No.  40  proposing  the  Sixteenth  Amendment 
to  the  Constitution  was  passed  by  the  Senate  July  5,  1909,  by  a 
unanimous  vote  of  77  yeas — 15  not  voting.  Congressional  Record, 
Vol.  44,  Part  IV,  p.  4121.  In  the  House  of  Representatives  the 
Resolution  was  ordered  to  a  third  reading  and  passed  July  12,  1909, 
by  a  vote  of  318  yeas  to  14  nays — 55  not  voting.  Congressional  Rec- 
ord, Vol.  44,  Part  IV,  p.  4440. 


THE  SIXTEENTH  AMENDMENT  29! 

meeting  national  exigencies  *  *  *  The  comprehensive 
words,  from  whatever  source  derived,  if  taken  in  their 
natural  sense,  would  include  not  only  incomes  from  ordinary 
real  or  personal  property,  but  also  incomes  derived  from 
State  and  municipal  securities.  *  *  *  The  immunity 
from  Federal  taxation  that  the  State  and  its  instrumentalities 
now  enjoy  is  derived  not  from  any  express  provision  of  the 
Federal  Constitution,  but  from  what  has  been  deemed  to  be 
necessary  implication.  Who  can  say  that  any  such  implica- 
tion with  respect  to  the  proposed  tax  will  survive  the  adop- 
tion of  this  explicit  and  comprehensive  Amendment? 

The  message  closed  with  a  recommendation  that  the 
amendment  be  not  ratified. 

In  opposition  to  the  view  taken  by  Governor  Hughes, 
Mr.  Edwin  R.  A.  Seligman  filed  an  elaborate  argument 
in  which  his  main  contentions  were : 

1.  That  the  interpretation  of  the  legal  force  of  the 
proposed  amendment  was  incorrect. 

2.  That  even  if  the  legal  interpretation  were  correct 
the  Governor  had  failed    to    take    into    account  certain 
economic  facts  which  would  prevent  the  consequences  he 
feared. 

3.  That  even  if  the  views  expressed  in  the  message 
were  correct  and  it  were  true  that  the  amendment  would 
operate  to  change  the  law  in  the  direction  indicated,  there 
were  valid  reasons  why  the  law  should  be  so  changed  and 
the  amendment  prevail. 

He  construed  the  words  "from  whatever  source  de- 
rived" as  equivalent  to  "irrespective  of  source,"  or  a 
shorter  way  of  saying  "from  all  sources  alike  whether 
the  source  be  one  that  previously  made  an  apportionment 
necessary  or  not." 

He  made  it  clear  that  the  amendment  contemplated  a 
general  income  tax  and  not  a  special  tax,  and  that  the 
effect  of  the  tax  could  therefore  not  operate  to  the  special 
disadvantage  of  state  securities. 


292  INCOME  TAXATION 

He  also  called  attention  to  the  fact  that  while  it  might 
well  be  granted  that  the  States  cannot  tax  the  Federal 
securities,  it  by  no  means  follows  that  the  Federal 
Government  ought  not  to  have  the  power  to  tax  State 
or  local  bonds. 

On  February  17,  1910,  Senator  Root  wrote  a  letter 
to  Senator  Davenport,  who  championed  the  amendment 
in  the  New  York  Senate,  in  which  he  dissented  from  the 
view  expressed  by  Governor  Hughes,  and  urged  the  ratifi- 
cation of  the  amendment.  He  argued  that  the  proposed 
amendment  does  not  enlarge  the  taxing  power  of  the 
National  Government,  but  merely  relieves  from  the  rule 
of  apportionment  the  power  which  now  exists  to  tax  in- 
comes. In  his  opinion  the  words  "from  whatever  source 
derived"  were  obviously  intended  to  make  the  exemption 
from  the  rule  of  apportionment  conclusive  and  applicable 
to  all  taxes  on  incomes,  and  he  gave  it  as  his  view  "that 
no  danger  to  the  powers- or  instrumentalities  of  the  States 
is  to  be  apprehended  from  the  adoption  of  the  amend- 
ment." 

On  April  11,  1910,  a  memorandum  was  submitted  to 
the  legislature  in  opposition  to  the  amendment,  which  was 
signed  by  Joseph  H.  Choate,  William  D.  Guthrie,  Victor 
Morawetz,  Austen  S.  Fox  and  John  G.  Milburn.  There 
was  also  a  separate  concurring  memorandum  signed  by 
Francis  Lynde  Stetson. 

The  great  eminence  and  recognized  ability  of  the  men 
who  signed  this  document  no  doubt  impressed  the  legis- 
lature and  contributed  to  the  defeat  of  the  amendment  in 
New  York.  The  ground  taken  in  the  memorandum  was 
somewhat  different  from  that  occupied  by  Governor 
Hughes,  as  a  considerable  portion  of  the  argument  was 


THE  SIXTEENTH  AMENDMENT  293 

devoted  to  objections  to  a  Federal  income  tax  in  general 
and  to  a  graduated  or  progressive  income  tax  in 
particular. 

In  the  Southern  states,  and  particularly  in  Virginia, 
the  chief  objection  to  the  amendment  seems  to  be  based 
upon  an  impression  that  it  is  a  grant  of  power  to  the 
Federal  Government  "and,  to  the  extent  of  that  grant,  a 
diminution  of  the  reserved  rights  of  the  States."2  It 
might  be  suggested,  in  answer  to  this  view,  that  Congress 
undoubtedly  has  the  power  already  to  tax  incomes  by  ap- 
portionment according  to  population,  and  under  that 
method  the  Southern  states  would  fare  worse  than  under 
the  kind  of  income  tax  authorized  by  the  amendment. 
The  negroes  would  be  counted  in  the  population,  but 
would  not  contribute  proportionally  to  the  tax. 

The  idea  of  amending  that  clause  of  the  Constitution 
which  refers  to  direct  taxes  is  by  no  means  a  new  one. 
As  long  ago  as  1793  an  amendment  was  proposed,  pro- 
viding that  every  tax  should  be  deemed  direct  other  than 
taxes  on  imports,  excises,  transfers  of  property  and  legal 
proceedings.3  In  18G5,  Representative  I.  C.  Sloan,  of 
Wisconsin,  introduced  a  resolution  to  amend  the  Con- 
stitution so  that  direct  taxes  should  be  apportioned  among 
the  several  States  according  to  the  appraised  value  of 
taxable  property  therein. 

A  similar  resolution  was  proposed  by  Senator  James 
R.  Doolittle,  February  6,  1866,  and  it  reappeared  six 
times  between  1876  and  1883,  being  introduced  each 


2.  See  letter  of  Richard  E.  Byrd,  Speaker  of  House  of  Dele- 
gates (Va.),  to  New  York  Sun  May  3,  1910. 

3.  Ames,  Herman  V.     "The  proposed  Amendments  to  the  Con- 
stitution during  the  first  century  of  its  history,"  in  Annual  Report  of 
the  American  Historical  Association,  Vol.  VIII,  Part  2,  p.  242. 


294  INCOME  TAXATION 

time  by  Senator  Regan  of  Texas.  These  amendments 
were  opposed  upon  the  ground  that  they  would  constitute 
a  strong  inducement  to  undervaluation  and  it  was  sug- 
gested that  there  would  be  necessity  for  another  law  re- 
quiring the  States  to  "cheat  equally." 

There  have  been  in  all  about  twenty  resolutions  which 
proposed  to  amend  the  constitution  in  respect  to  direct 
taxes,  but  none  of  them  has  received  the  approval  of 
Congress  except  the  proposed  Sixteenth  Amendment.4 

The  number  of  state  legislatures  which  have  taken 
definite  action  upon  the  question  of  ratifying  the  Six- 
teenth Amendment  up  to  this  time  (October,  1910),  is 
thirteen.  Of  this  number  there  are  eight  which  have 
ratified  the  amendment  by  the  requisite  vote,  namely : 
Alabama,  Georgia,  Illinois,  Kentucky,  Maryland,  Mis- 
sissippi, Oklahoma  and  South  Carolina.  There  are  four 
which  have  voted  against  ratification — New  York, 
Massachusetts,  Rhode  Island  and  Virginia — while  in 
Louisiana  the  Senate  and  the  House  were  unable  to  agree 
and  it  was  decided  to  submit  the  question  to  the  voters  at 
the  next  primary  election.  It  thus  appears  that  there  are 
still  thirty-six  states  in  which  the  question  is  likely  to 
arise  at  their  next  legislative  sessions. 

As  the  whole  number  of  states  is  now  forty-eight, 
and  eight  states  have  voted  in  favor  of  ratification,  it  will 
be  necessary  to  secure  favorable  action  on  the  part  of  the 
legislatures  in  twenty- four  additional  states  in  order  to 


4.  There  have  been,  since  the  beginning  of  the  Government, 
some  1,500  resolutions,  containing  over  2,000  proposed  constitutional 
amendments,  which  have  been  submitted  in  one  or  both  branches  of 
Congress.  Of  this  large  number  only  19  amendments  have  suc- 
ceeded in  securing  the  requisite  two-thirds  vote  and  have  been  sub- 
mitted to  the  States  for  ratification.  Congressional  Record,  Vol.  44, 
July  5,  1909,  p.  4109. 


THE  SIXTEENTH   AMENDMENT  295 

make  the  amendment  effective.  A  vote  against  ratifica- 
tion does  not  preclude  a  ratification  at  a  later  date,5  but 
a  vote  in  favor  of  ratification  is  final  and  cannot  be  re- 
called or  rescinded.6  There  is  no  limitation  upon  the 
period  within  which  an  amendment  to  the  constitution 
may  be  ratified,7  and  it  is  beyond  the  power  of  Congress 
to  recall  an  amendment  which  has  once  been  submitted  to 
the  states. 

Of  the  thirty-six  states  which  have  not  yet  acted  upon 
the  amendment  all  but  two  will  have  sessions  of  their 
legislatures  in  the  early  part  of  January,  1911.  The  next 
session  of  the  Vermont  legislature,  after  the  October 
session  in  1910,  occurs  October  5,  1912,  and  the 
Louisiana  legislature  does  not  meet  again  until  May  in 
the  same  year.  As  to  the  states  which  have  voted  against 
ratification,  but  may  possibly  change  their  votes,  New 
York  and  Rhode  Island  have  legislative  sessions  in  Janu- 
ary, 1911,  while  in  Massachusetts  and  Virginia  the  legis- 
latures do  not  convene  again  until  January,  1912. 

The  following  facts  regarding  the  thirteen  states 
which  have  acted  upon  the  amendment  may  be  of  interest 
in  the  remaining  states  where  the  legislatures  still  have 
the  question  before  them. 


5.  Thus  Georgia  rejected  the  Fourteenth  Amendment  Novem- 
ber 13,  1866,  but  ratified  it  December  21,  1868;  North  Carolina  re- 
jected it  December  4,  1866,  but  ratified  it  July  4,  1868. 

6.  The  States  of  Ohio  and  New  Jersey  ratified  the  Fourteenth 
Amendment,  but  subsequent  legislatures  in  those   states   sought  to 
rescind   that   action.     Congress,   however,    included   Ohio  and    New 
Jersey  among  the  Commonwealths  which  it  declared  by  joint  reso- 
lution to  have  ratified  the  Fourteenth  Amendment. 

7.  In  1873  the  Ohio  Senate,  acting  upon  the  theory  that,  once 
proposed,  an  amendment  to  the  Constitution  is  always  open  to  rati- 
fication, and  wishing  to  express  its  emphatic  disapproval  of  the  so- 
called  "salary  grab,"  by  which  salaries  of  members  of  Congress  were 
increased,  passed  a   resolution  ratifying  an  amendment  relating  to 
Congressional  salaries,  which  had  been  submitted  to  the  States  by 
the  first  Congress  in  1789 !     See  Jameson,  J.  A.,  A  Treatise  on  Con- 
stitutional Conventions,  4th  Ed.,  Chicago,  1887. 


296  INCOME  TAXATION 

"Alabama  was  the  first  of  the  states  to  ratify  the 
amendment.  The  manner  in  which  the  ratification  was 
made  is  of  interest  as  the  form  of  the  resolution  adopted 
has  been  followed  in  some  other  states : 

House  Joint  Resolution  No.  7,  which  was  approved 
by  the  Governor  August  17,  1909,  recites  in  the  preamble 
that— 

Whereas  the  Congress  of  the  United  States  on  July  — , 
1909,  adopted  a  joint  resolution  proposing  an  amendment 
to  the  Constitution  of  the  United  States  as  follows :  [here 
follow  resolution  and  proposed  amendment.] 

Now,  therefore,  be  it  resolved  by  the  legislature  of  the 
State  of  Alabama,  that  the  foregoing  amendment  to  the 
Constitution  of  the  United  States  be  and  the  same  is  hereby 
ratified  to  all  intents  and  purposes  as  a  part  of  the  Con- 
stitution of  the  United  States. 

2.  That  the  Governor  of  this  State  is  hereby  requested 
to  forward  to  the  President  of  the  United  States  an  au- 
thentic copy  of  the  foregoing  joint  resolution. 

The  Governor  approved  the  House  Joint  Resolution; 
but  the  better  opinion  seems  to  be  that  such  approval  is 
not  necessary,  and  that  it  is  not  within  the  province  of 
the  Governor  to  act  upon  a  resolution.  The  Constitution 
requires  simply  that  the  amendment  shall  be  ratified  by 
the  legislatures  of  three- fourths  of  the  states  and  it  has 
been  argued  that  under  such  circumstances  the  legislature 
acts  in  the  capacity  of  a  convention  and  not  as  it  would 
in  the  performance  of  ordinary  legislative  functions. 

In  Georgia  the  amendment  was  ratified  in  the  state 
Senate  by  a  vote  of  23  to  18,  July  10,  1910.  In  the  House 
the  vote  stood  129  for,  and  32  against  ratification. 

In  Illinois  the  resolution  \vas  in  the  following  form : 

Whereas  the  Congress  of  the  United  States  has  pro- 
posed to  the  several  States  the  following  amendment  to  the 
Federal  Constitution. 

[Here  follow  resolution  and  proposed  amendment.] 


THE  SIXTEENTH  AMENDMENT  297 

Further  be  it  resolved  by  the  Senate  and  House  of  Rep- 
resentatives concurring  therein  that  the  State  of  Illinois  by 
its  legislature  ratifies  and  assents  to  said  amendment. 

The  ratification  by  the  Senate  took  place  February 
9,  1910,  and  the  House  concurred  in  the  Senate  action 
March  1,  following. 

Kentucky.  While  this  state  is  usually  reckoned 
among  those  which  have  ratified  the  amendment,  there  is 
some  question  as  to  the  regularity  of  the  proceedings, 
and  the  ratification  has  not  yet  been  certified  to  Congress. 
In  answer  to  an  inquiry  Governor  Wilson  writes  as 
follows : 

There  is  a  dispute  as  to  the  record  and  the  Attorney 
General  is  investigating  it.  Both  Houses  originally  ratified 
the  amendment,  practically  unanimously,  but  in  such  haste 
(after  a  caucus  resolution  of  the  Democrats)  that  they 
omitted  the  words  "on  incomes"  in  the  engrossed  copy  which 
reached  me.  I  called  their  attention  to  the  omission  and 
thereupon  the  papers  reported  that  the  resolution  had  been 
again  adopted  by  both  Houses  in  the  correct  form.  But  the 
record  brought  to  me  shows  that  they  attempted  to  correct 
the  engrossment  of  a  bill  which  had  been  completely  en- 
grossed, signed  by  the  presiding  officers,  transmitted  to  the 
Governor  and  was  in  his  hands.  This  bill  was  afterwards 
vetoed  because  of  the  error  in  omitting  the  words  "on  in- 
comes" and  I  then  sent  to  both  Houses  the  official  com- 
munication of  the  Secretary  of  State  together  with  an 
official  copy  of  the  joint  resolution  for  their  action.  It  (the 
resolution)  passed  the  House,  and  the  Senate  voted  down 
a  motion  to  call  it  from  the  orders  of  the  day  and  it  did  not 
pass  the  Senate  in  that  shape.  I  cannot  advise  you  as  to 
whether  it  is  adopted  or  not  nor  as  to  the  date. 

The  complications  which  have  arisen  in  this  instance 
may  become  quite  important  if  the  vote  of  Kentucky 
should  become  necessary  to  make  up  the  total  of  thirty- 
six  states  favoring  the  amendment.  The  Joint  Resolu- 
tion ratifying  the  amendment  (H.  R.  No.  4)  is  printed 
in  the  Acts  of  1910  and  is  as  follows : 


298  INCOME  TAXATION 

Resolution  ratifying  the  i6th  Amendment  to  the  Con- 
stitution of  the  United  States. 

1.  Whereas,  the  Congress  of  the  United  States  on  July 
— ,  1909,  adopted  a  Joint  Resolution  proposing  an  amend- 
ment to  the  Constitution  of  the  United  States,  as  follows : 

[Here  follow  correct  copies  of  the  Resolution  and  pro- 
posed amendment.] 

And  the  foregoing  proposed  amendment  having  been 
laid  before  the  Legislature  of  the  State  of  Kentucky,  for 
consideration  and  action : 

Now,  Therefore,  Be  It  Resolved,  by  the  General  As- 
sembly of  the  Commonwealth  of  Kentucky  that  the  forego- 
ing amendment  to  the  Constitution  of  the  United  States,  be 
and  the  same  is  hereby  ratified  to  all  intents  and  purposes, 
as  a  part  of  the  Constitution  of  the  United  States. 

2.  That  the  Governor  of  this  State  is  hereby  requested 
to  forward  to  the  President  of  the  United  States  an  authentic 
copy  of  the  foregoing  joint  resolution. 

The  resolution  appears  to  be  in  due  form  although  the 
request  to  the  Governor  might  properly  have  specified 
that  certified  copies  should  be  forwarded,  not  only  to  the 
President,  but  also  to  the  Vice-President  and  the  Speaker 
of  the  House  of  Representatives.  The  words  "on  in- 
comes" do  not  occur  in  the  above  resolution  but  only  in 
the  copy  of  the  amendment. 

Upon  the  question  of  whether  or  not  the  ratification 
was  effective  we  venture  the  following  suggestions : 

1.  As  to  the  clerical  error  in  copying  the  amend- 
ment proposed  by  Congress,  the  general  rule  is  that 
"legislative  enactments  are  not  any  more  than  any  other 
writings  to  be  defeated  on  account  of  mistakes,  errors  or 
omissions,  provided  the  intention  of  the  legislature  can 
be  collected  from  the  whole  statute ;  and  the  title  and  pre- 
amble may  be  referred  for  this  purpose."8  In  this  in- 


8.     Sutherland  on  Statutes  and  Statutory  Construction,  Section 
260.    See,  also,  Division  of  Howard  County,  15  Kansas,  194. 


THE  SIXTEENTH  AMENDMENT  299 

stance  the  law  is  complete  as  published  and  the  error  is 
latent.  Justice  David  J.  Brewer,  while  Associate  Justice 
of  the  Supreme  Court  of  Kansas,  gave  his  views  of  a 
somewhat  similar  case  as  follows : 

Is  a  proposition  to  amend  the  Constitution  in  the  nature 
of  a  criminal  proceeding,  in  which  the  opponents  of  change 
stand  as  defendants  in  a  criminal  action,  entitled  to  avail 
themselves  of  any  technical  error,  or  mere  verbal  mistake; 
or  is  it  rather  a  civil  proceeding  in  which  those  omissions 
and  errors  which  work  no  wrong  to  substantial  rights  are 
to  be  disregarded  ?  Unhesitatingly,  we  affirm  the  latter.9 

2.  The  approval  or  veto  of  the  Governor  would  seem 
to  be  without  effect  for  the  following  reasons : 

a.  At  the  time  the  Constitution  of  the  United  States 
was  adopted  there  was  only  one  state  in  which  the  Gover- 
nor had  power  to  veto  bills. 

b.  The  provisions  of  the  Constitution  for  ratification 
by  conventions  would  indicate  that  the  approval  of  the 
Governor  was  not  contemplated. 

c.  It  has  been  repeatedly  held  by  the  courts  that 
amendments  of  state  constitutions  do  not  require  the  ap- 
proval of  the  Governor  to  become  effectual,  and  that  the 
veto  of  an  executive  can  only  be  exercised  when  his  as- 
sent is  necessary  to  perfect  a  law.10 

d.  While  it  is  true  that  Section  88  of  the  Fourth 
Constitution  of  the  State  of  Kentucky  expressly  provides 


9.  "Constitutional    Prohibitory    Amendment"  case,   24   Kansas, 
710. 

10.  Concurring  opinion  of  McEnery  in  State  ex  rel.  Morris  v. 
Secretary  of  State,  43  Louisiana  Annual  Reports,  590-6G5,  and  cases 
cited.     In  re  Senate  File  No.  31,  25  Nebraska,  864.     See,  also,  Jame- 
son, J.  A.    A  Treatise  on  constitutional  conventions,  §  556,  in  which 
it  is  explained  that  an  act  which  is  not  legislative  in  its  nature,  and 
when  perfect  and  operative  to  the  full  extent  intended  by  its  framers, 
is  yet  destitute  of  all  vigor  as  a  law,  does  not  come  within  the  con- 
stitutional provisions  requiring  approval  by  the  Governor. 


3OO  INCOME  TAXATION 

that  "every  order,  resolution  or  vote,  in  which  the  con- 
currence of  both  Houses  may  be  necessary  *  *  *  * 
shall  be  presented  to  the  Governor,  and,  before  it  shall 
take  effect,  shall  be  approved  by  him,"  it  is  also  true  that 
similar  provisions  are  found  in  the  Constitution  of  the 
United  States  in  reference  to  Congress  and  the  President, 
and  the  Supreme  Court  of  the  United  States  has  held  that 
the  approval  of  the  President  is  not  necessary  to  validate 
the  action  of  Congress  in  reference  to  a  constitutional 
amendment.11 

e.  Kentucky  is  not  without  a  precedent  in  this  mat- 
ter. In  the  case  of  the  Thirteenth  Amendment  to  the 
Constitution  of  the  United  States12  the  Kentucky  legis- 
lature voted  against  ratification  and  the  resolution  was 
submitted  to  Governor  Bramlette  for  approval  or  veto. 
The  Governor  adopted  the  view  that  his  duties  were 
purely  ministerial  in  such  a  case  and  although  he  re- 
gretted deeply  the  action  of  the  legislature,  he  declined 
to  return  the  resolution  with  his  dissent  on  the  ground 
that  the  action  of  the  legislature  was  absolutely  complete 
without  his  approval. 

In  Louisiana  the  amendment  was  ratified  in  the  lower 
House  July  2,  1910,  by  a  vote  of  77  to  31.  The  Senate 
voted  to  submit  the  matter  to  the  voters  by  referendum  at 
the  next  primary  election.  The  Conference  Committee, 
which  was  then  appointed,  was  unable  to  reach  an  agree- 


".  Hollingsworth  v.  Virginia,  3  Dallas,  378-380.  See  note  by 
Justice  Chase  in  which  he  says:  "The  negative  of  the  President 
applies  only  to  the  ordinary  cases  of  legislation :  he  has  nothing  to  dp 
with  the  proposition  or  adoption  of  amendments  to  the  constitution." 

12.  This  was  the  "Emancipation  Amendment,"  abolishing  sla- 
very. Kentucky  and  Delaware  were  the  only  states  which  voted 
squarely  against  ratification.  The  amendment  was  proclaimed  as 
adopted  December  18,  1865. 


THE  SIXTEENTH  AMENDMENT 


301 


merit  and,  unless  a  special  session  is  convened,  no  further 
action  is  likely  to  be  taken  until  the  next  meeting  of  the 
Legislature  in  May,  1912.  This  result  was  due  largely 
to  a  factional  contest  in  the  ranks  of  the  Democratic 
party,  Governor  Sanders  opposing  the  amendment  and 
the  Speaker,  Garland  Dupre,  favoring  it.  Some  of  the 
representatives  of  the  sugar  districts  also  objected  to  a 
Federal  income  tax  on  the  ground  that  it  might  pave  the 
way  for  a  reduction  in  the  tariff  on  sugar.13 

Massachusetts  was  the  second  state  to  reject  the 
amendment  by  the  votes  of  both  houses.  On  the  fourth 
of  May,  1910,  the  House  of  Representatives,  after  two 
days'  debate,  decided  against  ratification  by  a  vote  of 
126  to  101.  Of  those  who  favored  ratification  38  were 
Republicans,  62  Democrats  and  one  Socialist.  Of  those 
who  opposed  ratification,  124  were  Republicans  and  2 
Democrats.  There  were  11  absentees  of  whom  7  were 
Republicans  and  4  Democrats.  In  the  Senate  the  resolu- 
tion was  killed  by  a  vote  of  23  to  1,  May  19,  1910.  The 
question  was  fully  presented  to  the  electorate  before 
legislative  action  was  taken.  The  Democratic  State  con- 
vention followed  the  example  of  the  National  convention 
in  favoring  ratification.  The  Republican  convention, 
while  not  antagonizing  the  principle  of  income  taxation, 
seriously  questioned  the  advisability  of  enlarging  the 
Federal  power  in  this  respect,  lest  it  should  result  "in 
driving  the  states  out  of  a  field  of  taxation  which  sound 
economic  policy  might  make  it  advisable  for  them  to  re- 
serve for  themselves." 


1S.     See  Vicksburg  Herald,  June  1,  1910. 


3O2  INCOME  TAXATION 

Mississippi.  The  Joint  Resolution  ratifying  the 
amendment  is  slightly  different  in  form  from  that  of  any 
other  state,  and  is  as  follows  :14 

JOINT  RESOLUTION  of  the  Legislature  of  the  State 
of  Mississippi  ratifying  and  approving  the  proposed  amend- 
ment to  the  Constitution  of  the  United  States  relative  to  in- 
come tax. 

WHEREAS,  The  Sixty-first  Congress  of  the  United 
States  of  America,  at  the  first  session  begun  and  held  in  the 
city  of  Washington,  on  Monday  the  I5th  day  of  March, 
1909,  proposed  an  amendment  to  the  Constitution  of  the 
United  States,  in  words  and  figures  as  follows : 

Article  XVI.  Congress  shall  have  power  to  lay  and 
collect  taxes  on  incomes  from  whatever  source  derived  with- 
out apportionment  among  the  several  States,  and  without 
regard  to  any  census  of  enumeration : 

Now,  THEREFORE,  be  it  resolved  by  the  Legisla- 
ture of  the  State  of  Mississippi,  That  the  foregoing  resolu- 
tion, being  the  sixteenth  amendment  to  the  Constitution  of 
the  United  States,  be,  and  the  same  is  hereby  approved  and 
ratified. 

Adopted  by  the  House  of  Representatives  the  29th  day 
of  January,  1910. 

H.  M.  STREET, 

Speaker  House  of  Representatives. 

Adopted  by  the  Senate  the  7th  day  of  March,  1910. 

J.  L.  HEBRON, 

President  pro  tern,  of  the  Senate. 

Approved  by  the  Governor  the  nth  day  of  March,  1910. 

E.  F.  NOEL, 

Governor. 

Passing  by  the  preamble,  the  phraseology  of  which 
suggests  the  caption  of  a  court  order,  it  will  be  observed 
that,  as  in  Kentucky,  the  amendment  is  not  quoted  cor- 


".    Chapter  361,  H.  J.  R.  No.  14,  Laws  of  Mississippi,  1910,  p. 
308. 


THE  SIXTEENTH  AMENDMENT  303 

rectly,  "of"  being  substituted  for  "or"  before  the  last 
word,  so  that  it  reads  "census  of  enumeration,  instead  of 
"census  or  enumeration."  Presumably  this  is  a  printer's 
error.  There  seems  to  have  been  but  very  little  opposi- 
tion to  the  amendment  and  a  letter  from  the  Governor 
states  that  the  resolution  was  passed  by  an  "overwhelm- 
ing" vote  in  each  House. 

New  York.  As  has  been  already  shown  in  this  chap- 
ter, the  question  of  ratification  was  argued  before  the 
New  York  legislature  by  men  of  great  ability.  In  the 
Assembly  the  friends  and  opponents  of  ratification  were 
very  evenly  divided.  The  total  membership  of  the  As- 
sembly is  150  and,  as  it  was  considered  that  a  majority 
of  all  the  members  elected,  and  not  merely  a  majority  of 
the  members  voting,  was  necessary  to  effective  ratifica- 
tion, 76  votes  were  needed  to  pass  the  resolution.  The 
first  vote,  which  was  taken  April  20,  1910,  stood  74  to  66 
in  favor  of  ratification,  10  members  being  absent.  The 
question  of  reconsideration  came  up  May  3,  and  the  vote 
then  stood  75  to  67 — there  being  8  absentees.  Dividing 
this  vote  according  to  political  affiliations  it  appears  that 
64  Republicans  and  3  Democrats  were  opposed  to  recon- 
sideration, while  27  Republicans  and  48  Democrats 
favored  it. 

On  May  17,  the  New  York  Senate  passed  the  Daven- 
port resolution,  ratifying  the  16th  Amendment,  by  a  vote 
of  26  to  20.  This  was  an  apparent  majority  of  six  votes ; 
but  the  full  26  votes  were  necessary  to  constitute  a 
majority  of  the  members  elected.  Politically,  those  vot- 
ing for  ratification  comprised  13  Republicans  and  13 
Democrats,  while  the  opposition  consisted  of  19  Re- 
publicans and  one  Democrat. 


304  INCOME  TAXATION 

The  question  came  before  the  Assembly  for  the  third 
time  May  25,  upon  the  motion  of  Assemblyman  Murray 
to  suspend  the  rules  in  order  to  take  up  the  Davenport 
resolution  which  had  been  adopted  by  the  Senate.  The 
motion  was  lost  by  a  vote  of  75  to  64,  being  one  vote  less 
than  the  number  needed. 

The  fact  that  a  measure  which  was  proposed  by  a 
Republican  President  and  passed  by  a  Republican  Con- 
gress should  meet  with  defeat  in  a  strongly  Republican 
legislature,  has  excited  some  comment  especially  in  view 
of  the  fact  that  a  large  majority  of  the  Democratic  mem- 
bers favored  the  amendment.  Various  explanations  have 
been  offered  of  which  the  following  seems  plausible : 

The  reason  the  amendment  failed  was  because  a  majority 
of  the  Assemblymen  were  unwilling  to  have  the  great  wealth 
of  the  State  of  New  York  taxed  for  the  benefit  of  the  South 
and  West  whose  Congressmen  are  in  the  majority  and  whose 
people  would  bear  but  little  of  the  burden.15 

It  is  probable  that  a  renewed  effort  will  be  made  to 
secure  a  majority  in  favor  of  ratification  at  the  next  ses- 
sion of  the  legislature. 

Oklahoma.  House  Joint  Resolution  No.  5,  entitled 
"A  Resolution  ratifying  an  amendment  proposed  by  the 
Sixty-first  Congress  of  the  United  States  of  America,  on 
the  fifteenth  day  of  March,  one  thousand  nine  hundred 
and  nine,  to  the  Constitution  of  the  United  States  and 
designated  as  Article  Sixteen"  was  recommended  by  the 
Governor,  adopted  by  both  Houses  of  the  legislature  and 
approved  March  14,  19 10.16 


15.  See  authorized  statement  of  Assemblyman  Seymour  Low- 
man  in  Elmira  (N.  Y.)  Advertiser  of  May  7,  1910. 

16.  Laws  of  Oklahoma,  1910,  p.  275. 


THE  SIXTEENTH  AMENDMENT  305 

Rhode  Island.  As  was  to  be  expected  in  a  state  where 
the  protection  sentiment  is  strong,  the  amendment  failed 
of  ratification  April  29,  1910,  a  large  majority  favoring 
rejection  in  each  House.  The  Governor  was  requested 
in  the  resolution  to  transmit  a  copy  to  the  Secretary  of 
State  of  the  United  States — an  entirely  unnecessary  pro- 
ceeding. 

Contrary  to  the  example  of  Senator  Root,  who  loyally 
championed  the  amendment  before  the  New  York  legis- 
lature, Senator  Aldrich  of  Rhode  Island  did  not  make 
any  effort  to  secure  the  ratification  of  the  amendment  in 
his  own  state. 

South  Carolina.  The  ratification  of  the  sixteenth 
amendment  is  embodied  in  Law  No.  608,  which,  after  the 
usual  preamble  and  recitals,  reads  as  follows : 

Section  I.  Be  it  Resolved  by  the  Senate  and  House  of 
Representatives  of  the  State  of  South  Carolina, 

That  the  said  proposed  amendment  to  the  Constitution 
of  the  United  States  of  America  be  and  the  same  is  hereby 
ratified  by  the  General  Assembly  of  the  State  of  South 
Carolina. 

Section  2.  That  certified  copies  of  this  preamble  and 
Joint  Resolution  be  forwarded  by  the  Governor  of  this  State 
to  the  President  of  the  United  States,  to  the  presiding  officer 
of  the  United  States  Senate  and  to  the  Speaker  of  the 
United  States  House  of  Representatives. 

The  Resolution  was  approved  by  the  Governor 
February  23,  1910. 

Section  2  of  the  Resolution  is  commended  as  being 
more  complete  and  accurate  in  form  than  any  of  the  other 
resolutions  which  have  been  quoted. 

Virginia.  In  this  state  the  Senate  voted  in  favor  of 
ratification,  but  the  House  of  Delegates  on  the  seventh  of 


306  INCOME  TAXATION 

March,  1910,  refused,  by  a  vote  of  50  to  33,  to  order  to 
engrossment  the  bill  ratifying  the  amendment.  The  chief 
reason  given  for  opposing  ratification  as  stated  by 
Speaker  Byrd  in  a  letter  to  the  New  York  Sun,  dated 
May  3,  1910,  was  that  the  proposed  amendment  "is  a 
voluntary  invitation  to  the  Federal  government  to  invade 
and  occupy  the  innermost  citadel  of  what  remains  of  the 
reserved  rights  of  the  states." 

It  will  be  seen  by  the  above  resume  of  the  action  thus 
far  taken  by  state  legislatures,  that  other  considerations 
than  the  mere  desirability  of  a  Federal  income  tax  have 
in  a  number  of  instances  had  controlling  weight.  Of  the 
states  which  are  still  to  consider  the  question  of  ratifica- 
tion it  is  expected  that  Connecticut,  New  Hampshire, 
New  Jersey,  Pennsylvania  and  Delaware  will  vote  ad- 
versely to  the  amendment.  This  would  increase  the  num- 
ber of  rejections  to  nine.  Among  the  doubtful  states  are 
Vermont,  Maine,  Louisiana  and  Ohio;  but  it  should  be 
noted  that  the  Republican  State  convention  in  Maine  and 
the  Democratic  State  convention  in  Ohio  have  declared  in 
favor  of  ratification.  It  should  also  be  remembered  that 
the  rejection  of  the  amendment  by  thirteen  states  is  not 
final,  as  subsequent  legislatures,  especially  in  states  where 
the  vote  has  been  very  close,  may  decide  in  favor  of 
ratification. 


CHAPTER  XV. 


SUMMARY. 

The  great  variety  of  methods  which  have  been  ap- 
plied in  the  taxation  of  income,  is  at  once  a  tribute  to  the 
ingenuity  of  the  human  mind  and  an  indication  that  this 
form  of  taxation  is  still  in  an  experimental  stage.  As  no 
two  countries  employ  the  same  system  it  is  evident  that 
no  plan  has  yet  been  devised  possessing  such  superlative 
merits  as  to  commend  it  for  general  adoption.  On  the 
other  hand,  it  is  probably  true  that  nearly  every  country 
which  has  introduced  an  income  tax  in  recent  years  has 
endeavored  to  profit  to  some  extent  by  the  experiences  of 
other  nations.  But  this  can  hardly  be  said  of  the  United 
States.  The  income  tax  laws  thus  far  adopted  in  this 
country  would  seem  to  have  been  drawn  largely  by  men 
who  had  given  the  subject  but  little  study  and  who  had 
only  the  vaguest  ideas  of  what  had  been  accomplished  in 
other  lands.  The  crudities  and  imperfections  which  are 
only  too  apparent  in  these  laws  are  due  in  part  to  the  fact 
that  political  considerations  have  influenced  those  who 
framed  them.  Important  fiscal  measures  of  this  character 
should  be  formulated  by  commissions  composed  of  men 
who  are  reasonably  free  from  partisan  bias  and  whose 
learning  and  abilities  render  them  fitted  for  such  a  task. 


308  INCOME  [TAXATION 

It  is  a  great  mistake  to  suppose  that  the  intricate  problem 
of  how  to  tax  incomes  in  such  manner  that  the  burden 
shall  be  equally  distributed  can  be  solved  by  any  simple 
formula.  Income  taxation  looks  to  the  ability  of  the  in- 
dividual, and  as  the  abilities  of  human  beings  are  in- 
finitely varied,  a  vast  number  of  complex  situations  arise 
which  can  only  be  met  by  a  law  of  great  range  and  flexi- 
bility. Such  a  law  is  not  likely  to  be  devised  at  the  first 
attempt.  It  must  to  a  large  extent  be  a  matter  of  growth 
and  development  along  practical  lines.  Such  growth  and 
development  will  hardly  take  place  as  the  result  of  the 
efforts  of  any  one  individual  and  perhaps  not  through  the 
united  efforts  of  any  one  national  government;  but  rather 
by  a  process  of  gradually  sifting  out  that  which  has  been 
proven  best  by  the  experiences  of  many  men  and  many 
peoples.  If  the  Federal  government  of  the  United  States 
is  to  enter  the  field  of  income  taxation  it  would  do  well 
to  investigate  the  methods  of  those  foreign  countries 
which  have  been  most  successful  in  this  field,  and  begin — 
not  where  they  began — but  where  they  left  off,  avoiding 
their  mistakes  and  adopting  those  features  of  their  sys- 
tems which  have  stood  the  test  of  practical  application. 

It  has  been  the  aim  of  this  book  to  review,  in  such 
manner  as  to  make  them  readily  available  for  reference 
and  comparison,  the  practical  results  of  income  taxation 
in  many  countries.  While  the  work  has  been  necessarily 
incomplete  and  fragmentary,  it  may  serve  to  point  the 
way  to  a  field  of  investigation  which,  up  to  this  time,  has 
been  much  neglected. 

In  taking  a  broad  view  of  this  subject,  we  note  a  few 
salient  facts  which  it  has  seemed  worth  while  to  present 
in  the  form  of  a  brief  summary.  It  should  be  premised 


SUMMARY  309 

however  that  comparative  statistics  relating  to  income 
taxation  are  not  of  the  sort  which  can  be  collated  with 
scientific  precision,  but  are  rather  in  the  nature  of  mere 
approximations.  Any  attempt  at  generalization  is  met  by 
serious  difficulties  arising  not  only  from  the  widely  dis- 
similar and  often  complicated  methods  in  vogue,  but  also 
from  the  incompleteness,  inaccuracy  and  lack  of  uni- 
formity in  statistical  records. 

Population  of  income-taxing  countries.  The  countries 
in  which  incomes  are  taxed  represent  a  population  of 
540,000,000  or  more  than  a  third  of  the  estimated  census 
of  the  globe.  If  the  United  States  and  France  join  the 
ranks  of  the  income-taxing  countries  this  number  will  be 
swelled  by  the  addition  of  120,000,000. 

Recent  growth  of  income  taxation.  That  the  income 
tax  laws  now  in  force  are  of  comparatively  recent  origin 
is  shown  by  the  fact  that  the  average  of  the  dates  when 
they  went  into  effect  in  fifty-two  foreign  countries  and 
states  is  found  in  the  year  1881.  If  we  except  England, 
Bavaria,  Saxony  and  four  Swiss  cantons  where  income 
taxes  have  been  in  force  for  long  periods,  the  average 
date  of  the  beginning  of  income  taxation  in  the  remain- 
ing forty-five  states  and  countries  would  be  in  the  year 
1899.  In  this  connection  it  is  a  noteworthy  fact  that  no 
foreign  country  which  has  adopted  an  income  tax  within 
the  past  twenty-five  years  has  seen  fit  to  abandon  it. 

Federal  and  State  taxation.  There  are  only  ten  of  the 
large  countries  which  have  what  might  be  called  federal 
income  taxes — that  is  to  say,  income  taxes  levied  by  the 
general  government  for  its  own  needs  as  distinguished 
from  those  levied  by  the  minor  political  subdivisions.  The 
ten  larger  countries  alluded  to  are  Austria,  Denmark, 


3IO  INCOME  TAXATION 

England,  Holland,  Hungary,  Italy,  Japan,  Norway,  Spain 
and  Sweden.  In  Denmark,  Holland  and  Norway  there 
is  also  local  taxation  of  income  by  cities  and  communes. 
Allusion  is  often  made  to  the  Australian,  the  Swiss  and 
the  German  income  taxes,  but,  as  has  already  been  pointed 
out,  neither  the  Australian  Commonwealth,  the  Swiss 
Confederation  nor  the  German  Empire  levies  any  income 
tax. 

General  characteristics  of  systems.  In  the  Australian 
States  and  New  Zealand  the  methods  in  vogue  are  charac- 
terized by  high  exemptions,  abruptly  graded  rates,  com- 
binations with  single  tax  and  sharp  differentiation  in 
favor  of  incomes  from  personal  exertion  as  against  in- 
comes from  property  and  earnings  of  corporations.  In 
Japan  on  the  other  hand  there  is  a  very  small  exemption 
and  a  lower  rate  for  corporations  than  for  individuals. 
In  England  and  several  of  her  colonies,  as  also  in  Hawaii, 
there  is  a  tendency  to  high  exemptions  and  proportional 
or  slightly  graduated  scales  of  rates.  The  principle  of 
collection  of  income  at  the  source  has  been  developed 
more  thoroughly  in  England  than  in  any  other  country. 

Upon  the  European  continent,  where  it  may  fairly  be 
said  that  the  subject  of  income  taxation  has  received  the 
most  careful  study,  it  will  be  found  that  uniformly  low 
exemptions,  minutely  graded  scales  of  rates  and  elabo- 
rate systems  of  differentiation  are  the  most  characteristic 
features.  In  the  majority  of  the  continential  states  the 
tax  upon  each  grade  of  income  is  not  a  certain  percentage 
of  the  income  in  that  grade,  but  a  fixed  amount  which  is 
practically  equivalent  in  each  grade  to  the  amount  which 
would  result  from  a  gradually  increasing  percentual  rate. 
In  a  few  cases,  a  uniform  rate  is  provided  which  is  rend- 


SUMMARY 

ered  progressive  by  an  ingenious  system  of  diminishing 
abatements  in  the  lower  part  of  the  scale  and  a  series  of 
increasing  additions  to  the  higher  grades.  This  method 
has  been  carried  to  greater  lengths  in  Sweden  than  in  any 
other  country. 

A  prominent  feature  of  the  continental  methods  is  the 
supplementary  tax  which  is  usually  levied  at  a  low  rate  on 
the  total  wealth  of  the  taxpayer.  The  combination  of 
this  tax  with  the  income  tax  is  often  described  as  an  "in- 
come and  property  tax,"  although  the  expression  is  some- 
what inaccurate  and  misleading. 

Spain  and  Italy  have  what  might  be  termed  partial 
income  taxes,  as  the  profits  from  real  estate  are  not 
treated  as  income,  but  are  supposed  to  be  reached  by  the 
general  land  tax. 

Rates.  Perhaps  the  most  interesting  basis  of  com- 
parison which  can  be  selected  is  the  amount  of  rates  and 
the  degree  of  progression  which  is  applied  to  such  rates. 
But  it  is  precisely  at  this  point  that  the  greatest  difficulties 
are  encountered  owing  to  the  widely  divergent  and  often 
complicated  methods  employed.  It  seemed  very  desirable 
to  obtain  a  sort  of  composite  of  the  rates  in  as  many 
countries  as  possible,  and  it  was  found  that  there  were 
about  forty  systems  of  income  taxation  which  would  lend 
themselves  more  or  less  gracefully  to  this  purpose.  The 
countries  in  which  these  systems  of  income  taxation  are 
in  force  comprise  all  of  the  most  important,  except  Spain. 
They  represent  a  population  of  over  418,500,000,  or  77 
per  cent  of  the  whole.  Ten  fixed  points  were  selected  in 
the  scale  of  incomes  of  each  country  and  the  tax  com- 
puted and  reduced  to  American  currency  for  each  point. 
Owing  to  the  great  diversity  in  the  amount  of  exemption 


312 


INCOME  TAXATION 


and  the  influence  of  such  exemption  on  the  rate  as  ap- 
plied to  the  total  income,  it  was  found  necessary  to  take 
into  account  the  effect  of  the  exemption  in  every  case. 
As  a  result  of  this  rather  laborious  method  it  was  ascer- 
tained that  the  average  income  tax  on  a  total  income  of 


>   500  was  $   7.70  or  1.54  per  ce 

1,000 

19.80 

1.98 

2,000 

47.94 

2.40 

5,000 

147.87 

2.96 

10,000 

337,66 

3.37 

15,000 

509.09 

3.39 

20,000 

691.45 

3.46 

25,000 

888.45 

3.55 

50,000 

1,878  30 

3.75 

100,000 

3,791.29 

3.79 

« 

It  should  be  explained  that  the  percentages  given 
above  are  somewhat  lower  than  they  would  be  if  the  rates 
on  all  incomes  had  been  taken  into  consideration.  In 
many  countries  higher  rates  are  levied  upon  income  from 
capital  or  investments  than  upon  income  from  labor;  but 
not  every  country  makes  this  distinction  and  it  has  there- 
fore seemed  best,  in  order  to  reach  a  common  and  uni- 
form basis,  to  confine  the  calculations  to  the  rates  fixed 
for  incomes  arising  from  personal  exertion.  Had  the 
higher  rates  which  are  levied  on  capital  in  some  countries 
and  the  super-taxes  and  supplemental  taxes  been  included 
in  the  computation,  the  average  amount  of  tax  and  the 
percentages  would  have  been  very  materially  increased. 
A  tabulation  of  the  rates  in  twenty  countries  where  a 
differentiation  exists  between  earned  and  unearned  in- 
comes, or,  in  other  words,  between  incomes  from  labor 
and  incomes  from  capital,  reveals  the  fact  that  the  aver- 
age proportion  of  the  rates  is  as  three  to  five,  that  is  to 
say:  when  a  certain  amount  of  income  from  labor  pays 
three  dollars  the  same  amount  of  income  from  capital 


SUMMARY  313 

would  pay  five  dollars.  This,  it  will  be  remembered,  was 
the  exact  proportion  adopted  in  Holland  by  Dr.  Pierson 
after  much  scientific  investigation. 

The  forty  countries  which  were  considered  in  the 
foregoing  computation  may  be  divided  into  two  groups 
as  follows : 

1.  The  "English  Group"  comprising  England,  six 
Australian     Commonwealths,     New     Zealand,     British 
Columbia,  Cape  of  Good  Hope,  India,  Leeward  Islands 
(Antiqua  and  Dominica),  Seyschelles,  St.  Vincent  and 
Hawaii. 

2.  The  "Continental  Group"  including  Austria,  Den- 
mark, Prussia,  Alsace-Lorraine,  Baden,  Bavaria,  Bruns- 
wick, Hesse,  Mecklenburg,  Saxony,  Wuerttemberg,  Hol- 
land, Hungary,  Italy,  Luxemburg,  Norway,  Sweden  and 
the  Swiss  Cantons  of  Appenzell    A.    Rh.,    Baselstadt, 
Graubunden,  Solothurn,  Waadt,  Zurich  and  Zug. 

By  computing  the  average  amount  of  tax  and  the  per- 
centages separately  for  each  of  these  groups  the  follow- 
ing results  are  obtained : 

Am't  of  English  Continental 

Income  Group  Group 

Tax         Percentage  Tax  Percentage 

$        500  $        8.84  1.76  $        7.42  1.48 

1,000  16.45  1.64  21.47  2.15 

2,000  40.45  2.02  52.62  2.63 

5,000  126.45  2.53  162.15  3.24 

10,000  296.28  2.96  365.25  3.65 

15,000  448.30  2.99  549.62  3.66 

20,000  608.28  3.04  746.91  3.73 

25,000  790.60  3.16  957.81  3.83 

50,000  1,616.26  3.23  2,052.98  4.10 

100,000  3,280.39  3.28  4,131.87  4.13 

The  lines  of  progression  which  would  be  produced  by 
connecting  the  percentages  above  shown  are  indicated  in 


314  INCOME  TAXATION 

a  diagram  which  will  be  found  in  Appendix  C.1  The 
rates  in  the  Continental  Group  would  be  somewhat  lower 
if  Italy  were  omitted,  as  the  Italian  rate  ranges  from 
eight  times  the  average  of  the  remaining  twenty-three 
countries,  for  $500,  to  more  than  double  in  the  higher 
portions  of  the  scale. 

Japan  has  not  been  included  in  either  group  as  the 
rates  are  quite  excessive.  The  amount  of  tax  which 
would  be  levied  in  Japan  is  as  follows : 

Income  Tax  Income  Tax 

$  500  $   17.25  $  15,000  $  2,092 

1,000  39.10  20,000  2,790 

2,000  92  25,000  4,590 

5,000  375  50,000  10,175 

10,000  1,160  100,000  20,350 

Amount  of  income  tax  collected.  The  amount  of  in- 
come tax  collected  in  the  year  1908,  was,  in  round  figures, 
$413,000,000.  In  this  respect  England  stands  at  the  head 
with  $165,000,000,  Prussia  was  second  with  about 
$88,000,000,  Italy  third  with  nearly  $50,000,000,  Spain 
$18,000,000,  Japan  $13,800,000,  Saxony  $12,275,000, 
Austria  $12,000,000  and  Holland,  India  and  Norway, 
each  with  nearly  $7,000,000.  These  ten  countries  to- 
gether, raised  about  $380,000,000  or  about  92  per  cent 
of  the  whole  amount. 

Proportion  which  income  tax  bears  to  total  taxes. 
The  amount  raised  by  taxation  of  incomes  is  sometimes 


1.  The  fact  that  the  rate  for  $1,000  in  the  English  group  is  less 
than  for  $500  may  require  some  explanation.  Four  Australian 
States  which  are  included  in  that  group  have  exemptions  of  £200 
or  $973.30.  The  amount  which  would  actually  be  taxed  therefore 
would  be  only  the  difference  between  that  sum  and  $1,000.  In  like 
manner  as  the  exemption  in  Hawaii  is  $1,500,  the  amounts  under 
that  sum  would  not  be  taxed  and  an  income  of  $2,000  would  be 
taxed  on  only  $500.  It  should  be  stated  that  the  English  super-tax 
and  the  German  supplementary  taxes  are  not  considered  in  these 
computations. 


SUMMARY 

compared  with  total  revenue;  but  the  results  obtained 
have  an  uncertain  value  by  reason  of  the  fact  that  many 
countries  have  large  gross  receipts  accruing  from  rail- 
roads and  other  public  utilities  while  in  others  the  only 
sources  of  revenue  are  direct  and  indirect  taxes.  It  has 
therefore  seemed  that  a  comparison  with  the  total  amount 
raised  by  direct  taxation  would  be  of  more  significance. 
A  tabulation  of  the  statistics  obtainable  on  this  point  in 
37  countries  discloses  the  fact  that  the  income  tax  con- 
tributed almost  exactly  fifty  per  cent  of  the  total  amount 
raised  by  taxation.  The  percentages  are  highest  in  the 
minor  German  States,  sometimes  exceeding  eighty  per 
cent. 

Exemptions.  A  comparison  of  the  exemptions  in 
various  countries  cannot  be  made  with  absolute  accuracy 
owing  to  diversity  of  methods.  For  example,  in  some 
states  the  laws  provide  that  incomes  below  a  certain  sum 
shall  be  exempt,  while  all  above  that  sum  shall  be  taxed 
at  their  full  amount.  In  other  states  the  exemption  ap- 
plies to  all  incomes  regardless  of  their  amount.  In  not  a 
few  cases  the  laws  are  ambiguous  as  to  which  method  is 
intended,  and  it  becomes  necessary  to  ascertain  how  the 
law  is  applied  in  practice.  In  some  countries  also,  as  in 
Denmark  and  Norway,  the  amount  of  exemption  is  vari- 
able according  to  the  number  of  dependents  the  taxpayer 
has  to  support  or  the  amount  of  his  income.  In  such 
cases  we  have  taken  as  the  amount  of  the  exemption  such 
sum  as  seemed  to  be  a  fair  average. 

From  a  tabulation  of  fifty-six  countries  which  have 
exemptions  it  appears  that  the  average  amount  deemed 
to  be  necessary  as  a  minimum  of  existence  and  therefore 
exempt  at  the  foot  of  the  scale,  is  $iOG.30.  If  however 


3l6  INCOME  TAXATION 

these  fifty-six  countries  are  divided  into  two  groups,  the 
first  to  consist  of  England,  fourteen  of  her  colonies 
and  Hawaii,  and  the  second  composed  of  the  countries 
and  states  of  continental  Europe,  together  with  Japan,  it 
will  be  found  that  the  first  or  what  might  be  called  the 
English-speaking  group  has  an  average  exemption  of 
$1,098.50  or,  in  round  numbers,  $1,100,  while  the  aver- 
age of  the  second  group,  comprising  forty  countries  and 
political  subdivisions  is  only  $153.13. 

Proportion  of  income  taxpayers.  The  proportion  of 
income  taxpayers  to  population  is  an  important  item,  but 
there  appear  to  be  only  twenty  countries  in  which  reliable 
statistics  upon  this  point  are  available.  Fortunately  these 
comprise  most  of  the  larger  countries  as  will  be  seen  by 
the  fact  that  their  combined  population  amounts  to  420,- 
000,000.  The  proportion  which  the  income  taxpayers 
bear  to  total  population  in  these  countries  is  three  and 
one-half  per  cent,  but  if  India  is  omitted,  as  it  perhaps 
should  be  owing  to  exceptional  conditions  which  prevail 
there,  the  rate  for  the  remaining  nineteen  countries  rises 
to  ten  per  cent.  Among  the  larger  states  the  highest  pro- 
portion is  found  in  Saxony  where  26  per  cent  of  the 
population  pay  income  taxes.  In  Prussia  the  proportion 
of  income  taxpayers  is  16.36  per  cent.  Although  the 
population  of  Prussia  is  only  about  five-sixths  of  that  of 
England  the  number  of  income  taxpayers  in  the  former 
country  is  five  times  as  great  as  in  the  latter.  This  fact 
is  no  doubt  accounted  for  by  the  difference  in  the  exemp- 
tion— England  exempting  nearly  $800  while  the  amount 
exempted  in  Prussia  is  only  $214.  Attention  has  already 
been  called  to  the  fact  that  Prussia  now  has  about  the 
same  population  and  about  the  same  amount  of  wealth  as 


SUMMARY  317 

the  United  States  had  in  the  later  sixties.  The  average 
number  of  persons  who  paid  the  Civil  War  income  tax  in 
the  years  1867-1870  was  267,564,  or  about  two-thirds  of 
one  per  cent  of  the  population.  In  Prussia  the  number  of 
taxpayers  in  1909  was  6,107,621  or  twenty-two  times  as 
many.  But  an  analysis  of  the  Prussian  statistics  for 
1909  will  show  that  if  the  exemption  of  900  marks,  or 
$214,  had  been  raised  to  $1,000,  which  was  the  amount 
allowed  by  the  Civil  War  income  tax  at  the  period  men- 
tioned, the  number  of  Prussian  income  taxpayers  would 
have  been  only  324,127.  Of  the  six  million  income  tax- 
payers in  Prussia  nearly  five  and  one-half  million,  or,  to 
be  more  exact,  89.81  per  cent  are  assessed  for  annual 
incomes  of  less  than  $714,  while  only  three  per  cent  have 
incomes  exceeding  $1,550.  In  Austria  85  per  cent  of  the 
income  taxpayers  are  assessed  for  incomes  of  less  than 
$812  and  97  per  cent  for  incomes  of  less  than  $2,500; 
but  it  must  not  be  supposed  that  the  amount  of  taxes  paid 
bears  any  fixed  relation  to  the  number  of  persons  as- 
sessed. As  a  matter  of  fact  the  three  per  cent  of  the 
population  who  have  incomes  over  $2,500  pay  26  per  cent 
of  the  whole  tax. 


It  will  be  observed  that  no  effort  has  been  made  in  the 
preceding  pages  to  discuss  the  subject  of  income  taxation 
from  a  theoretical  or  scientific  standpoint.  This  branch 
of  the  subject  has  been  treated  with  great  fulness  by 
many  distinguished  authors  and  we  should  despair  of 
being  able  to  add  to  the  discussion  anything  which  had 


318  INCOME  TAXATION 

not  already  been  better  said.2  Neither  has  it  seemed 
advisable  to  attempt  any  lengthy  discussion  of  the  argu- 
ments which  have  been  advanced  for  and  against  the  in- 
come tax.  Whether  or  not  the  taxation  of  incomes 
should  become  a  feature  of  our  financial  system  is  a 
question  upon  which  thoughtful  men  may  well  differ  and 
upon  which  it  has  not  seemed  necessary  to  take  sides  in 
the  preparation  of  this  book.  Whatever  may  be  the 
merits  of  the  controversy,  the  fact  remains  that  nearly 
every  civilized  country  has  now  adopted  the  income  tax 
and,  unless  we  greatly  misinterpret  the  present  trend  of 
public  sentiment,  its  general  introduction  in  this  country 
is  soon  to  follow.  In  view  of  this  contingency  it  may  be 
well  to  allude  to  a  few  of  the  important  questions  which 
are  likely  to  engage  public  attention. 

In  the  first  place  there  is  the  question  of  what  is  the 
true  scope  and  purpose  of  an  income  tax. 

The  enthusiastic  champions  of  such  a  tax  are  some- 
times inclined  to  look  upon  it  as  a  panacea  for  all  social 
ills,  losing  sight  of  the  fact  that,  like  every  other  form 
of  taxation,  its  chief  function  is  the  raising  of  revenue. 
And  even  in  this  respect  it  has  its  limitations.  Whether 
it  can  ever  be  made  to  occupy  anything  more  than  a  sub- 
ordinate position  in  the  field  of  taxation  may  well  be 
doubted.  In  its  practical  application  the  income  tax  is 
best  fitted  for  the  modest  role  of  a  supplementary  tax. 
To  put  the  whole  burden  of  taxation  upon  incomes  would 


2  Professor  Edwin  R.  A.  Seligman  is  about  to  issue  a  book 
which  will  treat  of  the  income  tax  with  special  reference  to  its 
theoretic  and  scientific  basis.  His  acknowledged  pre-eminence  as  a 
thinker  and  writer  upon  this  branch  of  political  science  makes  it 
certain  that  this  book  will  constitute  an  important  and  valuable  con- 
tribution to  the  literature  of  the  subject. 


SUMMARY  319 

be  more  unjust  than  to  place  it  wholly  upon  property. 
There  are  features  of  our  present  system,  such  as  the 
tax  on  intangible  personalty,  which  have  proven  unsatis- 
factory and  for  which  the  income  tax  might  offer  an  ac- 
ceptable substitute.  The  experiences  of  other  countries 
would  seem  to  demonstrate  also  that  a  tax  on  incomes 
can  be  used  to  restore  the  equilibrium  of  a  financial  sys- 
tem where  the  indirect  taxes  bear  most  heavily  upon  the 
poorer  classes.  But  it  is  not  the  proper  function  of  an 
income  tax  to  correct  social  inequalities  nor  to  take  money 
from  the  rich  for  the  benefit  of  those  less  fortunate.  It 
is  primarily  and  preeminently  a  fiscal  measure  which 
finds  its  justification  in  the  extent  to  \vhich  it  will  adjust 
itself  with  reasonable  fairness  to  the  abilities  of  those 
who  are  called  upon  to  pay  it. 

In  the  second  place,  there  is  the  great  question  of 
whether  the  taxation  of  incomes  should  be  undertaken  by 
the  Federal  Government,  or  by  the  states,  or  by  both.  The 
principal  arguments  in  favor  of  a  Federal  income  tax 
may  be  briefly  stated  as  follows : 

1.  The  general  government  is  now  compelled  to  rely 
almost  wholly  upon  customs  and  excises3  for  its  revenues. 
In  case  of  emergency  some  other  source  of  income  should 
be  at  hand  which  can  be  utilized  without  disturbing  prices 
or  seriously  interfering  with  business.  The  income  tax 
possesses  these  requisites. 


3.  The  word  "excises"  is  here  used  in  the  sense  of  a  tax  levied 
on  certain  commodities  of  domestic  production :  "Taxes  on  com- 
modities are  either  on  production  within  the  country,  or  on  importa- 
tion into  it,  or  on  conveyance  or  sale  within  it,  and  are  classed  re- 
spectively as  excises,  customs  or  tolls  or  transit  duties."  John  Stuart 
Mill,  Political  Economy,  Vol.  5,  Ch.  3,  p.  562. 


32O  INCOME  TAXATION 

2.  The  Federal  Government  would  have  a  distinct 
advantage  in  that  the  tax  being  uniform  throughout  the 
United  States,  there  would  be  no  escape  from  it  by  means 
of  moving  from  one  state  to  another. 

3.  Under  a  general  income  tax  the  danger  of  double 
taxation  could  be  largely  avoided.     Nearly  all  business 
of  importance  now  transcends  state  lines  and  if  some  or 
all  of  the  states  should  levy  income  taxes,  which  were 
really  effective,  a  large  amount  of  double  taxation  would 
be  inevitable.4 

4.  It  is  quite  generally  conceded  that  Federal  ad- 
ministration of  the  income  tax  is  likely  to  prove  much 
more  thorough  and  efficient  than  any  system  involving 
great  diversity  of  methods  and  constantly  subject  to  the 
caprices  of  local  authorities. 

In  opposition  to  these  considerations  it  is  urged  that  a 
Federal  income  tax  is  an  unwarranted  interference  with 
the  rights  of  the  states,  and  a  step  towards  centralization 
in  so  far  as  it  appropriates  to  the  general  government  an 
important  source  of  revenue  to  which  the  several  com- 
monwealths are  primarily  entitled. 

Similar  arguments,  pro  and  con,  have  been  advanced 
in  respect  to  the  corporation  tax  and  the  inheritance  tax. 
It  has  been  proposed  as  a  means  of  reconciling  these  con- 
flicting views  that  the  Federal  Government  should  collect 
such  taxes,  but  afterward  apportion  the  major  part  of  the 


4.  If  state  taxation  of  incomes  were  general  there  would  no 
doubt  be  the  greatest  variety  of  methods  and  rates  and  we  should 
have  ?  repetition  on  a  large  scale  of  the  retaliatory  legislation  which 
is  such  an  unfortunate  feature  of  the  taxation  of  insurance  com- 
panies. 


SUMMARY 


321 


amount  collected  among  the  respective  states.5  So  far  as 
income  taxes  are  concerned  it  is  not  impossible  that  both 
jurisdictions  might  levy  such  taxes  at  the  same  time  pro- 
viding that  the  rates  were  sufficiently  moderate;  and  we 
venture  the  suggestion  that  in  case  a  Federal  income  tax 
is  levied  the  states  could  avail  themselves  of  the  assess- 
ments made  by  the  general  government  as  a  basis  for 
local  income  taxation.  It  will  be  remembered  that  in 
Prussia  municipal  income  taxes  are  levied  upon  the  basis 
of  assessments  made  by  the  Prussian  Government  and 
the  assessment  of  the  tax  is  thus  removed  from  local  in- 
fluences. If  the  United  States  Government  should  levy 
a  general  proportional  income  tax  of,  say,  one  per  cent 
and  make  the  exemption  very  low,  the  amount  raised 
would  no  doubt  be  adequate  in  times  of  peace6  and  the 
state  could  still  add  one,  or  even  two  per  cent  without 
making  the  tax  excessive. 

A  third  question  which  is  likely  to  receive  much  at- 
tention is  that  of  the  comparative  merits  of  progressive 
and  proportional  taxation.  Upon  the  one  side  are  those 


5.  "Thus  we  reach  the  conclusion  that,  of  the  three  great  taxes 
about  which  the  controversy  has  now  become  acute,  the  income  tax 
ought  to  be  levied  by  the  Federal  Government  and  its  proceeds  util- 
ized not  only  to  diminish  the  burden  of  the  National  indirect  taxes, 
but  more  especially  in  order  to  facilitate  the  reform  of  the  state 
general  property  tax :  and  we  reach  the  further  conclusion  that  the 
corporation  tax  and  the  inheritance  tax  should  be  levied  as  National 
taxes,  by  the  Federal  Government,  but  under  a  clear  understanding 
with  the  separate  states  that  the  proceeds  should  be  distributed  in 
whole  or   in  greater  part  to  them."     Seligman,  The  Relations  of 
State  and  Federal  Finance,  North  American  Review,  Vol.  190  (Nov., 
1909),  pp.  615-627. 

6.  In  1866,  corporations  paid  more  than  one-eighth  of  the  whole 
income  tax.     In  1910  a  one  per  cent  tax  on  corporations  yielded 
twenty-seven  million  dollars.     If  the  proportion  between  individual 
and  corporate  wealth  were  substantially  the  same  now  as  then  a  Fed- 
eral   income   tax    of   one   per    cent    might   be   expected    to   yield 
$200,000,000.     See  note  to  Appendix  F. 


322  INCOME  TAXATION 

who  contend  that  some  degree  of  progression  is  neces- 
sary— especially  in  a  Federal  tax — to  offset  the  inequali- 
ties of  indirect  taxation  and  to  bring  about  approximate 
"equality  of  sacrifice."7  In  opposition  to  these  conten- 
tions the  dangers  of  class  legislation  are  pointed  out,  and 
it  is  argued  that  the  great  advantages  arising  from  "col- 
lection at  the  source"  can  only  be  secured  by  a  propor- 
tional tax.8  It  has  been  stated  that  two-thirds  of  the 
English  income  tax  is  collected  at  the  source,  and  thus 
to  a  very  large  extent  the  inquisitorial  proceedings  which 
tend  to  render  income  taxation  unpopular,  are  avoided. 
But  it  is  not  probable  that  any  such  results  could  be  ob- 
tained in  the  United  States  where  the  ramifications  of 
business  are  so  much  more  extensive  and  complicated. 

The  proper  amount  of  exemption  at  the  foot  of  the 
scale  is  another  problem  upon  which  there  is  likely  to  be 
much  divergence  of  opinion.  Some  of  the  income  taxes 
recently  proposed  have  placed  the  exemption  as  high  as 
five  and  even  ten  thousand  dollars,  while  not  a  few 
writers  and  speakers  have  argued  against  the  allowance 
of  any  exemption. 


7.  John  Stuart  Mill  defines  "equality  of  sacrifice"  as  such  an 
apportionment  of  the  expenses   of  government  as  will  cause  each 
person  neither  more  nor  less  inconvenience  from  his  share  of  the 
payment  than  every  other  person  experiences  from  his,  but  he  in- 
timates that  such  a  standard  of  perfection  is  not  obtainable  in  prac- 
tice. 

8.  It  is  evident  that  under  a  progressive  tax  the  person  who 
was  required  to  deduct  the  income  tax  from  salaries  or  dividends 
and  to  pay  it  over  to  the  Government,   could  not  know    what    rate 
to   apply   and    would   therefore   use  the   highest   rate.    The   result 
would  be  that  large  amounts  in  excess  of  the  proper  tax  would  be 
collected  and  a  great  number  of  reclamations  would  have  to  be  made 
by  the  taxpayers. 


SUMMARY  323 

The  best  authorities  are  in  substantial  agreement  that 
the  exemption  should  equal,  but  not  exceed  a  reasonable 
"minimum  of  subsistence;"  but  to  determine  what  sum 
would  answer  to  that  term  is  no  easy  task. 

In  the  matter  of  abatements  and  differentiations  it  is 
evident  that  income  taxation  permits  of  almost  infinite 
development,  and  it  will  be  necessary  to  establish  definite 
principles  upon  which  laws  for  these  purposes  shall  be 
based.  If  abatements  are  to  be  allowed  in  favor  of  those 
who  have  children  or  dependents  to  support,  the  question 
arises  whether  certain  drawbacks  such  as  old  age,  physi- 
cal infirmities,  etc.,  should  not  be  taken  into  considera- 
tion. If  there  is  differentiation  in  favor  of  earned  income 
a  similar  discrimination  might  be  made  in  favor  of  in- 
come from  property  already  taxed,  or  income  which  is 
only  temporary,  or  precarious,  or  non-inheritable.  The 
field  for  inquiry,  discussion  and  investigation  which  is 
thus  opened  up  is  almost  limitless,  but  up  to  this  time  it 
seems  to  have  been  largely  overlooked  and  ignored. 

Lastly,  there  is  the  administrative  problem  which  is 
perhaps  after  all  the  most  difficult.  The  importance  of 
this  branch  of  the  subject  is  evidently  not  appreciated  in 
the  United  States  and  as  a  result  many  of  our  state  in- 
come tax  laws  have  been  lamentably  weak  and  inefficient. 

It  is  a  common  remark  that  income  tax  laws  are  all 
right,  but  that  they  do  not  work  in  practice.  Certainly 
the  experiences  of  those  states  which  have  passed  such 
laws  are  not  encouraging,  but  is  it  not  possible  that  the 
fault  lies  with  the  crude  and  imperfect  administrative 
methods  which  have  thus  far  been  employed?  The  as- 
sessment of  the  annual  net  income  of  each  taxpayer  is  a 


INCOME  TAXATION 

peculiarly  difficult  task,  because  it  involves  the  ascertain- 
ment of  a  sum,  the  amount  of  which  is  usually  carefully 
concealed  or  possibly  unknown  even  to  the  taxpayer  him- 
self. The  argument  most  frequently  advanced  against 
income  taxation  is  that  it  is  inquisitorial  and  to  a  limited 
extent  this  is  true.  But  the  argument  is  far  from  con- 
clusive. There  is  more  of  the  inquisitorial  feature  in  the 
administration  of  our  tariff  laws  where  examination  of 
the  person  is  often  resorted  to,  and  in  the  internal  revenue 
department  where  every  step  in  the  manufacture  of  spirits 
and  tobacco  is  carefully  watched.  The  laws  for  the  assess- 
ment of  personal  property,  if  rigidly  enforced,  would  be 
quite  as  inquisitorial  as  any  income  tax,  and  many  per- 
sons would  rather  give  a  statement  of  their  annual  net 
income  than  to  furnish  the  complete  exhibit  of  their  assets 
and  liabilities  now  required  in  many  states.  Moreover, 
if  the  principle  of  collection  at  source  is  applied  to  its  full 
extent  the  resort  to  inquisitorial  proceedings  is  largely 
obviated.  The  extent  to  which  an  income  tax  will  be 
open  to  the  objection  that  it  is  inquisitorial  will  also  de- 
pend upon  whether  income  is  reckoned  in  a  lump  sum  or 
divided  into  schedules ;  whether  the  amount  of  income  is 
determined  by  the  declaration  of  the  taxpayer,  by  "ex- 
terior signs"  or  by  official  estimation;  whether  the  in- 
come of  the  current  year,  or  the  preceding  year,  or  a  term 
of  years  shall  form  the  basis  of  assessment;  whether  in- 
come tax  returns  shall  be  made  public  or  not ;  and  whether 
the  assessments  shall  be  in  the  hands  of  local,  state  or 
Federal  officials. 

From  what  has  been  said  above  it  is  evident  that  many 
difficult  problems  will  have  to  be  solved  before  an  income 
tax  law  can  be  drawn  which  will  be  approximately  fair 


SUMMARY  325 

and  just.  The  subject  must  be  viewed  from  the  stand- 
point of  the  political  economist,  the  statesman,  the  man 
of  affairs,  the  financier,  the  social  reformer,  the  capitalist 
and  the  laborer.  Nor  will  it  suffice  to  formulate  proper 
laws  unless  the  general  public  can  be  educated  to  a  due 
appreciation  of  the  necessity  and  propriety  of  such  laws. 
The  people  are  the  ultimate  arbiters  as  to  any  measure 
which  so  vitally  concerns  their  social  and  economic  wel- 
fare and  upon  their  collective  wisdom  and  intelligence 
the  future  success  or  failure  of  income  taxation  will 
largely  depend. 


REMARKS 
UPON  APPENDIX  A. 


The  lines  shown  upon  the  opposite  page  are  simply  de- 
signed to  illustrate  some  of  the  definitions  given  in  the  first 
chapter.  There  is  no  country  which  has  adopted  rates  cor- 
responding to  these  lines.  The  red  line  represents  a  tax 
levied  as  follows : 

Income  Tax  Income  Tax 

$     i.oo  to  $10,000  i%  $50,000  to  $  60,000  6% 

10,000  "     20,000  2 "  60,000  "       70,000  7 " 

20,000  "     30,000  3"  70,000  "       80,000  8" 

30,000  "     40,000  4"  80,000  "       90,000  9" 

40,000  "     50,000  5 "  90,000  "      100,000  10 " 

It  is  a  common  and  almost  universal  feature  of  pro- 
gressive taxation  that  the  grades  are  smaller  and  the  rates 
increase  more  rapidly  in  the  lower  portions  of  the  scale  than 
in  the  higher.  The  "proportional  progression"  could  be  ob- 
tained by  levying  a  tax  of  one  cent  upon  the  first  dollar  of 
income  and  adding  one  cent  for  each  additional  dollar.  A 
proportional  tax  of  one  per  cent  would  be  represented  by  the 
red  line,  which  starts  at  one  per  cent  produced  as  a  straight 
horizontal  line  across  the  page. 


APPENDIX  A. 


INCOME 
$100.000 


J  90.000 


$  80.000 


J  70.000 


$  60.000 


t- 

\  o 


$  50.000 


>  o 

•«  o 


\* 


$  40.000 


$  30.000 


$  20.000 


$  10.000 


#       4? 


a>       <x> 


r  ' 


REMARKS 
UPON  APPENDIX  B. 


It  will  be  noticed  that  the  red  line  is  not  a  curve,  but  a 
succession  of  straight  lines.  This  is  due  to  the  fact  that  the 
amount  of  tax  for  only  ten  points  in  the  scale  of  rates  for 
each  country  has  been  ascertained,  and  lines  drawn  which 
connected  those  points.  If  the  average  rate  of  tax  had  been 
computed  for  each  one  hundred  dollars,  up  to  one  hundred 
thousand,  the  line  produced  by  connecting  the  points  thus 
ascertained  would  have  been  a  more  perfect  curve.  The 
irregularities  in  the  curve,  as  for  example  the  depression  at 
$15,000,  can  be  traced  to  the  disturbing  influence  of  the 
proportional  taxes  accompanied  by  high  exemptions. 


APPENDIX  B. 


INCOME 
$100.000 


$  95.000 


$  90.000 


$  80.000 


$  75000 


$  65  000 


$  55.000 


$  50.000 


$  45.000 


$  40.000 


$  35.000 


$  30.000 


S  25000 


$  15.000 


$  10.000 


$   5.000 


REMARKS 
UPON  APPENDIX  C. 


The  line  of  the  Civil  War  Income  Tax  has  been  added 
for  the  purpose  of  comparison  with  the  average  of  foreign 
countries.  The  table  obtained  by  combining  the  five  Civil 
War  income  taxes  for  the  same  ten  amounts  used  in  the 
computations  for  foreign  countries  would  be  as  follows : 

Income  Amount  of  Tax     Percentage 

$       500  o  o 

1,000  $     21.33  $2-!3 

2,000  54.80  2.74 

5,000  i95-8o  3.91 

10,000  532-80  5-33 

15,000  867.40  5.78 

20,000  1,172.40  5.86 

25,000  i,47740  5-91 

50,000  3,002.40  6. 

100,000  6,652.40  6.05 


It  must  be  borne  in  mind  that  there  are  several  countries  in  the 
English  and  Continental  groups  which  levy  somewhat  higher  rates 
upon  income  from  capital  than  upon  income  from  labor.  If  these 
higher  rates  had  been  included  in  the  computations'  the  two  lower 
lines  would  be  raised  slightly  and  the  comparison  with  the  Civil 
War  Income  Tax,  where  no  attempt  was  made  to  segregate  the 
earned  income,  would  be  more  accurate. 


APPENDIX  C. 


INCOME : 
$100.000 


$    90.000 


$    80.000 


$    70.000 


$    60.000 


$    50.000 


$    40.000 


$    30.000 


$    20.000 


$    10.000 


APPENDIX  D. 


TABLE  OF  RATES  IN  AUSTRIA. 


No.  of 

Income  (Crowns)l 

Tax 

No.  of 

Income  (Crowns) 

Tax 

Grade 

from 

to 

(Crowns) 

Grade 

from 

to 

(Crowns) 

1 

1,200 

1,250 

7.20 

34 

12,000 

13,000 

326 

2 

1,250 

1,300 

8 

35 

13,000 

14,000 

362 

3 

1,300 

1,350 

8.80 

36 

14,000 

15,000 

398 

4 

1,350 

1,400 

9.60 

37 

15,000 

16,000 

434 

5 

1,400 

1,500 

10.80 

38 

16,000 

17,000 

470 

6 

1,500 

1,600 

12 

39 

17,000 

18,000 

506 

7 

1,600 

1,700 

13.60 

40 

18,000 

19,000 

544 

8 

1,700 

1,800 

15.20 

41 

19,000 

20,000 

582 

9 

1,800 

1,900 

16.80 

42 

20,000 

22,000 

638 

10 

1,900 

2,000 

18.40 

43 

22,000 

24,000 

714 

11 

2,000 

2,200 

20 

44 

24,000 

26,000 

790 

12 

2,200 

2,400 

24 

45 

26,000 

28,000 

866 

13 

2,400 

2,600 

28 

46 

28,000 

30,000 

942 

14 

2,600 

2,800 

32 

47 

30,000 

32,000 

1,020 

15 

2,800 

3,000 

36 

48 

32,000 

34,000 

1,100 

16 

3,000 

3,200 

40 

49 

34,000 

36,000 

1,180 

17 

3,200 

3,400 

44 

50 

36,000 

38,000 

1,260 

18 

3,400 

3,600 

48 

51 

38,000 

40,000 

1,340 

19 

3,600 

3,800 

54 

52 

40,000 

44,000 

1,460 

20 

3,800 

4,000 

60 

53 

44,000 

48,000 

1,600 

21 

4,000 

4,400 

68 

54 

48,000 

52,000 

1,760 

22 

4,400 

4,800 

78 

55 

52,000 

56,000 

1,920 

23 

4,800 

5,200 

88 

56 

56,000 

60,000 

2,080 

24 

5,200 

5,600 

98 

57 

60,000 

64,000 

2,250 

25 

5,600 

6,000 

110 

58 

64,000 

68,000 

2,424 

26 

6,000 

6,600 

124 

59 

68,000 

72,000 

2,600 

27 

6,600 

7,200 

142 

60 

72,000 

76,000 

2,780 

28 

7,200 

7,800 

160 

61 

76,000 

80,000 

2,964 

29 

7,800 

8,400 

180 

62 

80,000 

84,000 

3,148 

30 

8,400 

9,200 

202 

63 

84,000 

88,000 

3,336 

31 

9,200 

10,000 

228 

64 

88,000 

92,000 

3,528 

32 

10,000 

11,000 

258 

65 

92,000 

96,000 

3.7202 

33 

11,000 

12,000 

292 

1.  As  the  Austrian  Crown  is  equivalent  to  20.3  cents  the  ap- 
proximate equivalent   of  any  of  the   above   amounts  in   American 
money  can  be  easily  ascertained  by  dividing  the  amount  by  five. 

2.  For  amount  of  tax  on  larger  amounts  of  income  see  Chapter 
III  Ante. 


APPENDIX  E. 

The  following  table,  compiled  from  the  Auditor's  re- 
ports for  the  respective  years,  shows  the  amount  of  the 
tax  upon  incomes  in  North  Carolina  compared  with  the 
total  state  tax. 

Year                     Amount  of  Total  State 

Income  Tax  Tax 

1849  $28,277.19  $  141,609.01 

1850  28,802.00  151,713.12 
1867             3,838.97  226,765.00 
1877             1,683.33  493,542.49 

1890  2,112.34  601,249.91 

1891  1,471.33  677,826.50 

1892  931.43  661,409.03 

1893  2,695.15  586,905.35 

1894  2,822.02  571,310.06 

1895  2,730.57  589,385.32 

1896  3,460.02  604,542.01 

1897  4,594.15  619,490.52 

1898  4,251.44  627,081.42 

1899  4,398.73  723,307.36 

1901  19,030.79  908,035.80 

1902  19,022.48  945,054.99 

1903  23,509.77  1,120,644.88 

1904  24,589.04  1,104,785.95 

1905  27,844.13  1,130,661.20 

1906  31,292.82  1,170,834.66 

1907  36,829.44  1,366,587.80 

1908  36,383.75  1,628,272.26 


APPENDIX  F. 

STATEMENT  OF 

APPROXIMATE  AMOUNTS  OF  TAX  AND  PENALTIES  ON 

CORPORATION    ASSESSMENT    LISTS    FOR    MONTHS 

OF  JANUARY,  FEBRUARY  AND  MARCH,  1910. 

Returns 

No.  of  Tax  Penalties  Total 

Alabama     3,185  $      144,666.45  $2,214.28  $      146,880.73 

Arkansas    1,814  58,020.74  389.69  58,410.43 

California 15,812  1,069,985.47  1,957.90  1,071,943.37 

Colorado    6,727  251,138.30  672.30  251,810.39 

Connecticut    3,486  641,081.45     641,081.45 

Florida     858  61,332.13  1,125.78  62,457.91 

Georgia    2,376  154,276.07     154,276.07 

Hawaii    417  124,143.58     124,143.58 

Illinois    14,759  2,482,355.45  13,065.29  2,495,420.74 

Indiana    5,578  402,175.96  1,485.92  403,664.88 

Iowa    5,081  186,086.75  431.30  186,518.05 

Kansas    4,783  411,327.08  996.69  412,323.77 

Kentucky    3,533  246,386.16  573.42  246,957.58 

Louisiana    2,199  162,921.28  1,651.89  164,573.17 

Maryland    3,902  520,007.93  37.70  520,045.63 

Massachusetts     8,456  1,393,329.82  35.17  1,393,364.99 

Michigan    5,728  773,854.77  6,034.92  779,889.69 

Minnesota    3,339  1,122,480.38  6,277.52  1,128,757.90 

Missouri    10,179  882,596.57  5,245.88  887,842.45 

Montana    11,372  204,261.10  4,981.47  209,242.57 

Nebraska    2,422  119,652.96  1,057.75  120,710.71 

New    Hampshire...     3,835  345,217.71  523.62  345,741.33 

New    Jersey 7,290  1,447,595.68  12,649.89  1,460,245.57 

New1    Mexico 1,050  73,717.55  3,924.80  77,642.35 

New    York 24,710  5,283,261.26  11,675.34  5,294,936.60 

N.  and  S.  Dakota...   3,034  54,799.08  925.99  55,725.07 

North    Carolina 2,939  67,131.17  652.00  67,783.17 

Ohio    12,872  1,668,286.35  1,137.26  1,669,423.61 

Oregon    3,067  149,734.90  514.60  150,249.50 

Pennsylvania    14,840  3,275,200.33  1,176.58  3,276,376.91 

S.    Carolina 2,366  82,334.60  405.42  82,740.02 

Tennessee    2,843  154,034.52  17.16  154,051.68 

Texas     5,407  393,801.96  3,375.81  397,177.77 

Virginia    2,700  345,041.56  1,497.11  346,538.67 

Washington    6,763  241,190.19  7,876.46  249,066.65 

W.   Virginia 3,142  133,472.41  275.66  133,748.07 

Wisconsin    7,128  582,145.51  184.22  582,329.73 

Total 219,992  $25,709,045.18  $95,046.58  $25,804,091.76 

January    11,241  158,370.52 


231,243 


$25,962,462.28 


Note :  It  appears  by  a  statement  made  public  November  27, 
1910,  that  the  total  number  of  corporations  was  262,490;  the  total 
net  income  $3,125,470,000;  total  capital  stock,  $52,371,626,752  and 
bonded  and  other  indebtedness,  $31,133,052,696. 


APPENDIX  G. 

VALUES  OF  FOREIGN   COINS  EXPRESSED  IN 
AMERICAN  CURRENCY. 


Country 


Coin 


Dollars  |  Cents 


Austria  and  Hungary. .  Heller  (100  Heller  =  1  Krone). .  00.2 

Austria  and  Hungary. .  Krone  (Crown),  (pi.  Kroner)...  20.3 

Norway Krone   (pi.  Kroner) 26.8 

England Pound  Sterling 4  86.65 

England Shilling  (12  pence) 24.3 

Finland Markka    (pi.    Markkaa) 19.3 

France Franc    19.3 

France Centime  (100  Centimes  =  1  Franc)    00.2 

France Livre  (obsolete)  =  1  Franc. 

France Sol  (obs.)  =  1  Sou  =  5  Centimes 

Germany Mark   23.8 

Germany Pfennig  (100  Pfennige  =  1  Mark)    00.25 

Greece Drachma   (pi.  Drachmas) 19.3 

Greece Lepta  ( 100  Leptas  =  1  Drachma)  00.2 

Holland Florin    40.2 

Holland Gulden  or  Guilder   (modern) 40.2 

India Rupee    32.441-3 

Italy Lira    (pi.  lire) 19.3 

Japan Yen    49.8 

Panama Balboa    (Gold) 1 

Philippines Pesa    50. 

Russia Ruble    51.5 

Spain Peseta   19.3 

Sweden Krona   (pi    Kroner) 26.8 


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INDEX 


Aargau,  195,  201,  313. 

Abatements,  defined,  13;  in 
Western  Australia,  34;  in  Au- 
stria, 39 ;  in  England,  04 ;  in 
France,  81;  in  Prussia,  96;  in 
Bavaria,  112;  in  Wuerttem- 
berg,  124;  in  Italy,  152;  in 
Sweden,  188;  in  Zurich,  195; 
in  general,  323. 

Absentee  tax,  in  Western  Au- 
stralia, 33 ;  in  Hungary,  147. 

Addington's  property  and  in- 
come tax,  60. 

Administration  (of  income  tax), 
in  Victoria,  31;  in  Austria,  39; 
in  Denmark,  55 ;  in  England, 
68 ;  in  France,  84 ;  in  Prussia, 
97 ;  in  Baden,  110 ;  in  Holland, 
141;  in  Hungary,  147;  in  Italy, 
153 ;  in  Japan,  159 ;  in  Norway, 
169;  in  Sweden,  192;  in  gen- 
eral, 323. 

Alabama,  210,  253,  294,  296. 

Alberta,  50. 

Aldrich,  Senator,  280,  305. 

Alsace  Lorraine,  107,  129,  313. 

American  Colonies,  203. 

Amsterdam,  143. 

Anhalt,  108,  129. 

Antiqua,  162,  313. 

Appenzell  A.  Rh.  201,  313. 

Australia,  18,  310. 

Australasia,  18. 

Austria,  35-44;  313,  314,  317; 
rates  in,  Appendix  D. 

Baden,  109,  129,  313. 
Bailey,  Senator,  279. 
Bailey  -  Cummins  Amendment, 

279 

Basel,  197,  199,  201,  313. 
Baselland,  201. 
Baselstadt,  See  Basel,  197. 


Bavaria,  111,  129,  309,  313. 

Beach,  E.  Hicks  186. 

Belgium,  44. 

Berne,  201. 

Bibliography.  336. 

Bonds,  See  United  States. 

Bowers,  Solicitor  General,  283. 

Bremen,  127,  129. 

Brewer,  Justice  David  J.,  299. 

British  Columbia,  47,  313. 

Brunswick,  113,  129,  135. 

Byrd,  Richard  E.,  293  n.,  306. 

Caillaux,  M.,  76,  77. 

Canada,  definition  of  income  in, 
6 ;  income  taxes  in,  43-50. 

Cape  of  Good  Hope.  50,  313. 

Capitation  tax,  180,  183. 

Carlyle,  Secretary,  252  n. 

Chase,  Salmon  P.,  238. 

Chemnitz,  120  n. 

Choate,  Joseph  H.,  292. 

Civil  War  Income  Tax.,  237-256 ; 
history,  247;  rates,  247-248; 
what  reckoned  as  income,  248- 
249;  exemptions  and  deduc- 
tions, 249-250;  administration, 
251 ;  financial  results,  252-253  ; 
sources  of  incomes,  254  ;  per- 
sons assessed,  254-255;  results 
geographically,  257 ;  income 
taxpayers,  317. 

Clemenceau,  Minister,  7G. 

Cleveland,  President,  257. 

Collection  at  source,  in  Queens- 
land, 23;  in  Victoria,  31;  in 
Austria,  41 ;  in  England,  65,  69, 
74 ;  in  France,  85 ;  in  India, 
149;  in  Italy,  151,  153,  155;  in 
England,  322. 

"Collective  liability"  plan,  177. 


344 


INDEX 


Collection  of  income  tax,  cost  of, 
in  South  Australia,  25 ;  in  Vic- 
toria, 32;  in  Denmark,  56;  in 
Hawaii,  134;  in  India,  150. 

Communal  income  taxes,  45,  56, 
142,  171. 

Confederacy,  Southern,  income 
tax  in,  269-272. 

Confederate  States,  233. 

Connecticut,  207,  306. 

Constitutional  Amendments,  294  n 

''Continental  Group,"  313. 

Contribution  personelle  Mobilier, 
75  n. 

Cooley,  Thomas  M.,  7-8. 

Copenhagen,  54-56. 

Corporation  Tax  Law,  273-286 ; 
in  Hawaii,  132;  in  Pennsyl- 
vania, 229;  history,  275-282;  in 
Supreme  Court,  282-285;  yield 
of,  286,  319  n.;  appendix  F. 

County  income  tax,  Hawaii,  133. 

Cummins,  Senator,  279. 

Declaration,  of  income,  98,  110, 
169. 

Definition,  of  income,  1;  of  divi- 
dends, 5 ;  of  profits,  5  n. ;  of 
tax,  6 ;  of  income  tax,  8 ;  of 
proportional  income  taxes,  9 ; 
of  graduated,  10;  progressive, 
10;  regressive,  11;  degressive, 
11;  of  income  in  Austria,  37; 
of  "income"  in  Civil  War  in- 
come tax,  249;  of  "equality  of 
sacrifice,"  322  n. ;  of  excise, 
324  n. 

Degressive  income  tax,  defined, 
11. 

Delaware,  212,  300  n.  306. 

Democratic  Convention  of  1908, 
277,  288. 

Denmark,  53-57;  309,  310,  313, 
315. 

Dependents,  deductions  for,  in 
Western  Australia,  34;  in  Au- 
stria, 39;  in  Denmark,  54;  in 
England,  65 ;  in  Prussia,  96 ;  in 
Saxony,  119;  in  Wuerttem- 
berg,  126 ;  in  Norway,  165,  167 ; 
in  Baselstadt,  198 ;  in  the  U.  S. 
323. 

Differentiation,  defined,  15 ;  in 
Queensland,  21;  in  England, 
67;  in  Spain,  186,  187;  in 
Switzerland,  197;  in  North 
Carolina,  223;  in  Virginia, 


232;  in  Continental  countries, 
310 ;  in  general,  323. 

Direct  taxes,  defined,  17;  of  1861, 
244;  in  the  Southern  Confed- 
eracy. 271;  in  the  Sixteenth 
Amendment,  289. 

Dividends,  defined,  5  n. 

Dominica,  162,  313. 

Doniawerstal,  143. 

Doolittle,  Senator  James  R.,  293. 

Earned  and  unearned  incomes, 
defined,  15 ;  in  New  South 
Wales,  19;  in  Queensland,  21; 
in  South  Australia,  24;  in  Tas- 
mania, 26 ;  in  Victoria,  30 ;  in 
England,  67 ;  in  France,  80 ;  .in 
Bavaria,  111-113;  in  Wuert- 
temberg,  126 ;  in  Japan,  160 ;  in 
Norway,  169;  in  Sweden,  192; 
in  Switzerland,  194,  195;  in 
Virginia,  232;  in  various  coun- 
tries, 312. 

Edmonton,  50. 

Egypt,  131. 

Ely,  Richard  T.,  6,  217. 

England,    58-74; 
income  tax  of  1806,  14. 
super-tax    in    16 ;     present    in- 
come tax  in,  58 ;  309,  310,  313, 
314,  316. 

"English  Group,"  313,  316,  Ap- 
pendix C. 

Equality  of  Sacrifice,  defined, 
322  n. 

Ergaenzungssteuer,  16,  78,  113, 
114,  115,  119,  120,  123,  124. 

Exemptions,  (see  the  various 
countries)  defined,  12;  aver- 
age, 317;  in  general,  322. 

"Exterior  signs,"  determination 
of  income  by,  in  Tasmania,  27 ; 
in  Austria,  41 ;  in  England,  69 ; 
in  general,  324. 

Faculty  taxes,  9,  203,  204,  207, 
208,  209. 

Federal  Income  taxes,  (see 
United  States)  237;  as  com- 
pared with  state,  321. 

Federal  Income  tax  of  1894,  256- 
269;  history,  256-259;  defects 
in,  260-262 ;  Supreme  Court  de- 
cisions as  to,  262-269;  in  gen- 
eral, 309. 

Fetter,  F.  A.,  4. 

Finland,   178. 


INDEX 


345 


Fisher,  Irving,  definition  of  in- 
come by,  4. 

Flint,  Senator,  281. 

Florentine  Republic,  150. 

Florida,  212. 

Foreign  coins,  American  equiva- 
lents, Appendix  G. 

Fourteenth  Amendment,  295  n. 

Fox,  Austen  S.,  292. 

France,  75,  85. 

Freiburg,  201. 

"From  whatever  source  derived," 
290. 

Fuller,  Chief  Justice,  285. 

Georgia,  212,  294,  295  n.,  296. 

Germany,  86. 

Gladstone,  61. 

Graduated  income  taxes,  defined, 
10. 

Graduated  land  tax,  in  Okla- 
homa, 227. 

Graubunden,  201,  313. 

Greece,  130. 

Gross  incomes,  2,  4,  226,  227,  230. 

"Gross  Receipts,"  conception  of 
income,  5. 

Guthrie,  William  D.,  292. 

Hamburg,  128,  129. 

Hawaii,  132-135;  310,  313,  314  n. 

Hesse,  114,  129,  313. 

Holland,  135-145 ;  310,  313,  314. 

Hughes,  Governor,  290,  292. 

Hungary,  145-150;  310,  315. 

Hylton  case,  237  n. 

Illinois,  294,  296. 

Impot  complementaire,  16,  78,  83, 
166. 

Income,  definition  of,  1. 
what  constitutes  in  Prussia,  90. 
what   reckoned    as    in    U.    S. 
(1862),  248;  defined,  249. 

Income  Taxation,  recent  growth 
of,  309. 

Income  taxes,  definition  of,  8. 
function  of,  319. 

Income  taxpayers,  average  pro- 
portion, 316. 

Increment  tax,  102. 

India,  147,  313,  314,  316. 

Inheritance  taxes,  in  New  Zea- 
land, 20  n;  in  Victoria,  30. 

Investments  tax,  109. 

Italy,  150-155,  186,  310,  311,  313, 
314. 


Ixelles,  46. 

Japan,  156-161,  310,  313,  314. 
Java,  145. 

Juridical  persons,  121,  156,  158, 
160. 

Kapitalrenlenstetter,  109,  112, 122. 
Kapitalsteucr,  108,  126. 
Kentucky,   214,   294,  297-300. 
Kinsman,  Delos  A.,  204,  212,  214, 

229,  235. 
Klassensteuer,  35,  86. 

Lane,  Jonathan  A.,  218  n. 
Leeward  Islands,  161,  313. 
Limited    liability    companies,  tax- 
ation of,  95,  121. 
Lippe-Detmold,  115,  129. 
Louisiana,  215,  294,  295,  300,  306. 
Lubeck,  128,  129. 
Lucerne,  201. 
Luxemburg,  163,  313. 

Maine,  306. 

Maryland,  216,  294. 

Massachusetts,  205,  217,  294,  295, 
301. 

McKilligan,  John  B.,  48. 

Mecklenburg-Schwerin,  115,  129, 
313. 

Mecklenburg-Strelitz,  115,  129, 
313. 

Milburn,  John  G.,  292. 

Mill,  John   Stuart,  322  n. 

Minor  German  States,  107-129; 
315. 

Mississippi,  294,  302. 

Missouri,  222. 

Morawetz,  Victor,  292. 

Municipal  income  taxes,  in  Prus- 
sia, 99,  321 ;  in  Basel,  199. 

Netherlands,  135. 

Neuchatel,  201. 

New  Hampshire,  208,  306. 

New  Jersey,  295  n.,  306. 

New  South  Wales,  19. 

New  York,  294,  295,  303. 

New  Zealand,  19-20,  310,  313. 

Noel,  E.  F.,  Governor,  302. 

Non-inquisitorial   ability  tax,  26. 

North  Carolina,  222,  232,  295  n. ; 

Financial  results,  App.  E. 
Norway,    164-172,    310,   313,   314, 

315. 


346 


INDEX 


Ohio,  295  n.,  306. 
Oklahoma,  225,  294. 
Oldenburg,  116,  129. 
Ontario,  48. 

Panama,  172. 

Pareto's  law,  74. 

Patentes,  79,  177. 

Peel,  Sir  Robert,  61. 

Pelletan,  M.  Camilla,  76. 

Pennsylvania,  228,  233,  306. 

Petty's  property  and  income  tax, 
60. 

Philippines,   174. 

Pierson,  Dr.  N.  G.,  135. 

Pitt,  William,  60. 

Poll  taxes  of  England,  in  1379,  8. 

Pollock  case,  264,  268,  276  n.,  278, 
286,  288. 

Population  of  income  taxing 
countries,  309. 

Porto  Rico,  176  n. 

Produce  taxes,  in  southern  con- 
federacy, 270,  271,  272. 

Profits,  definition  of,  4,  5. 

Progressive  income  taxes,  de- 
fined, 10;  321. 

Proportional  income  taxes,  de- 
fined, 9;  321. 

Proportional  progressive  tax,  ex- 
plained, 10.  See  Appendix  A. 

Prussia,  88-106,  313,  314,  316,  317. 

Publicity  (of  incomes),  181;  in 
United  States,  251,  286. 

Queensland,  21. 

Rates    (see    various    countries), 

comparative,  311,  314. 
Regressive  income  taxes,  defined, 

11. 
"Representative     taxpayers,"     in 

Cape  of  Good  Hope,  51. 
Republican   Convention  of   1908, 

277. 

Reuss  (Older  line),  116,  129. 
Reuss   (Younger  line),  117,  129. 
Rhode  Island,  207,  294,  295,  305. 
Roche,  Jules,  77. 
Roosevelt,  President,  277. 
Root,   Elihu,    Senator,    281,    292, 

305. 
Russia,  176. 

St.  Gall,  201. 

St.  Vincent,  181,  313. 

Savings  banks,  258. 


Saxe  Altenburg,  121,  129. 

Saxe-Coburg,  123,  129. 

Saxe-Gotha,  123,  129. 

Saxe-Meiningen,  123,  129. 

Saxe- Weimar,  123,   129. 

Saxony,  118,  129,  309,  313,  314, 
316. 

Schaffhausen,  201. 

Schaumberg  Lippe,  124,  129. 

Schwarzburg  -  Rudolstadt,  124, 
129. 

Schwarzburg  -  Sondershausen, 
124-129. 

Seligman,  Edwin,  R.  A.,  140,  203, 
217,  258  n.,  291,  321  n. 

Seychelles,  182,  313. 

Sherman,  Senator,  246. 

Single  tax,  19,  20  n.,  34. 

Sixteenth  Amendment,  287. 

Sloan,  I.  C,  293. 

Socialists,  in  France,  78;  in  Ger- 
many, 86. 

Socialist  Convention  of  1908,  277. 

Solothurn,  201,  313. 

South  Australia,  24. 

South  Carolina,  209,  229,  294, 
305. 

Spain,  183-188,  310,  311,  313, 
314. 

Spreckles  Case,  275,  278. 

State  income  taxes,  209,  210. 

Steiger,  J.,  201. 

Stetson,   Frances  Lynde,  292. 

Stevens,  Thaddeus,  238. 

Stoppage  at  source,  in  England, 
70. 

Summary,  307. 

Super-tax,  defined,  16;  in  Eng- 
land, 67;  in  Prussia,  101;  in 
Wuerttemberg,  126;  in  Hol- 
land, 144  n. ;  in  general,  314  n. 

Supplementary  tax,  defined,  16; 
in  Western  Australia,  33;  on 
salaries  in  Austria,  41 ;  in 
France,  78,  83 ;  in  Prussia,  100 ; 
in  Bavaria,  111 ;  in  Brunswick, 
113 ;  in  Hesse,  114 ;  in  Saxony, 
119,  120;  in  Saxe-Gotha,  123; 
in  Hungary,  147;  in  Luxem- 
burg, 164;  in  Norway,  166;  in 
Philippines,  175;  in  Russia, 
177;  in  Switzerland,  202;  in 
United  States,  245;  German, 
314 

Sweden,  109,  188-194,  310,  311, 
313 ;  compared  with  Baden,  Wi 

Switzerland,  194-202,  310,  313. 


INDEX 


347 


Taft,  President,  277,  278,  285,  288. 

Taney,  Chief  Justice,  261  n. 

Tasmania,  26. 

Tennessee,  231. 

Terneuzen,  143. 

Tessin,  201. 

Texas,  231. 

Thurgau,  201. 

Tooke,  John  Home,  letter  of,  73 

n. 
Trade  tax,  122,  127,  137,  145, 176, 

177,  186,  196. 
Transfer  tax,  103. 

Unearned  income  tax,  102. 
United  States  bonds,  tax  on,  214, 

232,  243. 
United  States,  Civil  war  income 

tax  in,  237. 


Vermont,  208,  295,  306. 

Victoria,  29. 

Virginia,  208,  232,  294,  295,  305. 

Waadt,  (Vaud),  196  n. ;  201,  313. 
Waldeck,  124,  129. 
Wallis,   (Valais),  201. 
"War  tax"  of  1898,  275,  276. 
Wells,   David  A.,   245-246. 
Western  Australia,  33. 
West  Virginia,  235. 
Wickersham,   Attorney  -  General, 

274,  278,  283. 
Wilson,  Henry  M.,  46. 
Willson,  Augustus  E.,  Governor, 

297. 

Wuerttemberg,  125,  129,  313. 
Zug,  201,  313. 
Zurich,  201,  313. 


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